B-162494, OCT. 26, 1967

B-162494: Oct 26, 1967

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CLAIMS SERVICE FEE BASED ON 2 PERCENT OF MORTGAGE LOAN MAY NOT HAVE ITEMS ALLOWED IN ABSENCE OF INFORMATION AS TO PRECISE NATURE OF ITEMS. AN ITEM CREDITED AS DEFERRED INCOME BY THE LENDER OVER A PERIOD OF YEARS IS IN NATURE OF A DISCOUNT OR "POINTS" PAID AS PART OF PRICE FOR HIRE OF MONEY LOANED AND UNDER BOB CIRCULAR A-56 IS NOT REIMBURSABLE. ITEM OF $275 DESCRIBED AS SERVICE FEE AND REIMBURSED TO EMPLOYEE MUST HAVE BEEN ESTABLISHED AS REPRESENTING A LENDER'S LOAN OR ORIGINATION FEE CORRESPONDING TO "INITIAL SERVICE CHARGE" BUT CERTIFYING OFFICER'S ATTENTION IS DIRECTED TO 24CFR 203.27. REIMBURSEMENT OF WHICH IS CLAIMED UNDER PUB.L. 89- 516. THE AMOUNT IS PART OF A SERVICE FEE OF $450 CHARGED BY THE FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION.

B-162494, OCT. 26, 1967

EMPLOYEES - TRANSFERS - PUBLIC LAW 89-516 - HOME SALE/PURCHASE EXPENSES DECISION TO CERTIFYING OFFICER OF FEDERAL HIGHWAY ADMINISTRATION CONCERNING PROPRIETY OF REIMBURSING EMPLOYEE FOR SERVICE FEE IN CONNECTION WITH PURCHASE OF RESIDENCE UPON TRANSFER. EMPLOYEE WHO, INCIDENT TO PURCHASE OF HOME UPON TRANSFER, CLAIMS SERVICE FEE BASED ON 2 PERCENT OF MORTGAGE LOAN MAY NOT HAVE ITEMS ALLOWED IN ABSENCE OF INFORMATION AS TO PRECISE NATURE OF ITEMS. AN ITEM CREDITED AS DEFERRED INCOME BY THE LENDER OVER A PERIOD OF YEARS IS IN NATURE OF A DISCOUNT OR "POINTS" PAID AS PART OF PRICE FOR HIRE OF MONEY LOANED AND UNDER BOB CIRCULAR A-56 IS NOT REIMBURSABLE. ITEM OF $275 DESCRIBED AS SERVICE FEE AND REIMBURSED TO EMPLOYEE MUST HAVE BEEN ESTABLISHED AS REPRESENTING A LENDER'S LOAN OR ORIGINATION FEE CORRESPONDING TO "INITIAL SERVICE CHARGE" BUT CERTIFYING OFFICER'S ATTENTION IS DIRECTED TO 24CFR 203.27.

TO MRS. MARY L. MOSLEY:

YOUR LETTER OF AUGUST 1, 1967, REFERENCE 54-27, ENCLOSING A RECLAIM VOUCHER OF $175 IN FAVOR OF JAMES W. RIDDLE, AN EMPLOYEE OF THE BUREAU OF PUBLIC ROADS, REQUESTS OUR DECISION WHETHER THE VOUCHER MAY BE CERTIFIED FOR PAYMENT.

THE ITEM OF EXPENSE, REIMBURSEMENT OF WHICH IS CLAIMED UNDER PUB.L. 89- 516, AS NOW CODIFIED IN 5 U.S.C. 5724A, REPRESENTS AN ITEM REFLECTED IN THE CLOSING STATEMENT OF A REAL ESTATE TRANSACTION AS A LOAN DISCOUNT INCIDENT TO THE PURCHASE OF A RESIDENCE ON A TRANSFER OF DUTY STATION. THE AMOUNT IS PART OF A SERVICE FEE OF $450 CHARGED BY THE FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION, NASHVILLE, TENNESSEE, REPRESENTING 2 PERCENT OF A MORTGAGE LOAN OF $22,500.

SECTION 4.2D OF BUREAU OF THE BUDGET CIRCULAR NO. A-56, REVISED OCTOBER 12, 1966, PROVIDES THAT FEES FOR LOAN APPLICATIONS AND LENDER'S LOAN ORIGINATIONS ARE REIMBURSABLE. MORTGAGE DISCOUNTS "POINTS") ARE NOT REIMBURSABLE.

THE SAVINGS AND LOAN ASSOCIATION COMMENTS ON THE ITEMS COMPRISING THE CHARGES AS FOLLOWS:

"SERVICE FEE IS ORDINARILY TAKEN INTO CURRENT INCOME. UNDER REGULATIONS OF THE FEDERAL HOME LOAN BANK ON THIS TYPE OF LOAN WE ARE ALLOWED TO TAKE INTO CURRENT INCOME 1 PERCENT OF YOUR LOAN OR $225.00 PLUS AN ADDITIONAL $50.00 MAKING A TOTAL GOING INTO CURRENT INCOME OF $275.00.

"THE BALANCE OF THE $450.00 SERVICE FEE, BY REGULATIONS OF FEDERAL HOME LOAN BANK HAS TO BE TAKEN INTO A DEFERRED INCOME ACCOUNT TO BE CREDITED TO INCOME OVER A PERIOD OF YEARS. * * *"

WE DO NOT QUESTION THE PROPRIETY OF THE CHARGES BUT WE ARE UNABLE TO DETERMINE WITH CERTAINTY FROM THE LOAN ASSOCIATION'S LETTER THE PRECISE NATURE OF THE ITEMS WHICH COMPRISE THE 2 PERCENT.

MORTGAGE DISCOUNTS (POINTS) HAVE BEEN DEFINED AS THE DIFFERENCE BETWEEN PAR (100) AND A LOWER PRICE THAT AN INVESTOR PAYS FOR A RESIDENTIAL MORTGAGE. THEY ARE CALCULATED TO PRODUCE A NET YIELD COMMENSURATE WITH THAT AVAILABLE FROM ALTERNATIVE INVESTMENT OPPORTUNITIES, AFTER CONSIDERING RISK, LIQUIDITY AND THE COSTS OF ORIGINATION AND SERVICING.

REGARDING THE $275 ITEM WHICH IS DESCRIBED ON THE CLOSING STATEMENT AS A "SERVICE FEE" AND WHICH HAS BEEN REIMBURSED TO THE EMPLOYEE, WE ASSUME YOU HAVE ESTABLISHED THAT SUCH CHARGE REPRESENTS A LENDER'S LOAN OR ORIGINATION FEE WHICH IS A CHARGE BY THE MORTAGEE-LENDER TO COMPENSATE FOR EXPENSES INCURRED IN ORIGINATING AND CLOSING A LOAN. SUCH A FEE CORRESPONDS TO AN "INITIAL SERVICE CHARGE.' FURTHER, IN THAT REGARD YOUR ATTENTION IS INVITED TO 24 CFR 203.27. ALSO, SEE FHA MANUAL, VOLUME X, MORTGAGEES' HANDBOOK, SECTION 1101.

THE ITEM OF $175 CREDITED TO DEFERRED INCOME BY THE LENDER OVER A PERIOD OF YEARS APPEARS TO BE IN THE NATURE OF A DISCOUNT OR "POINTS," THAT IS, A PART OF THE PRICE FOR THE HIRE OF THE MONEY LOANED.

THEREFORE, ON THE PRESENT RECORD THE VOUCHER WHICH IS RETURNED HEREWITH MAY NOT BE CERTIFIED FOR PAYMENT.