B-163419, FEB. 26, 1968

B-163419: Feb 26, 1968

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AN INSURANCE FEE CHARGED BY A MORTGAGE COMPANY FOR INSURING THE TOP 20 PERCENT OF A LOAN WHICH FEE IS FOR BENEFIT OF THE EMPLOYEE BORROWER SO THAT HE CAN GET A LOAN IN EXCESS OF THE APPRAISAL OF THE HOME IS A CHARGE FOR MORTGAGE GUARANTY INSURANCE AND SINCE MORTGAGE GUARANTY INSURANCE IS FOR THE PROTECTION OF THE MORTGAGEE AGAINST LOSS IN CASE OF DEFAULT IT IS NOT THE TYPE OF INSURANCE AUTHORIZED TO BE REIMBURSABLE UNDER SEC. 4.2D OF BOB CIR. MAY BE REIMBURSED $257 WHICH IS CLAIMED UNDER PUBLIC LAW 89-516. THE EMPLOYEE HAS BEEN REIMBURSED $257 OF THE TOTAL AMOUNT WHICH THE RECORD SHOWS WAS A SERVICE CHARGE BY THE ALBUQUERQUE FEDERAL SAVINGS AND LOAN ASSOCIATION. THE LENDER (MORTGAGEE) IS THE ONE WHO IS INSURED AND IN THE EVENT OF DEFAULT IN THE LOAN.

B-163419, FEB. 26, 1968

EMPLOYEES - TRANSFERS - PUBLIC LAW 89-516 - HOME SALE/PURCHASE EXPENSES DECISION TO CSC AS TO PROPRIETY OF REIMBURSING TRANSFERRED EMPLOYEE FOR SERVICE FEE INCIDENT TO PURCHASE OF A RESIDENCE AT THE NEW STATION (ALBUQUERQUE, N.M.) AN INSURANCE FEE CHARGED BY A MORTGAGE COMPANY FOR INSURING THE TOP 20 PERCENT OF A LOAN WHICH FEE IS FOR BENEFIT OF THE EMPLOYEE BORROWER SO THAT HE CAN GET A LOAN IN EXCESS OF THE APPRAISAL OF THE HOME IS A CHARGE FOR MORTGAGE GUARANTY INSURANCE AND SINCE MORTGAGE GUARANTY INSURANCE IS FOR THE PROTECTION OF THE MORTGAGEE AGAINST LOSS IN CASE OF DEFAULT IT IS NOT THE TYPE OF INSURANCE AUTHORIZED TO BE REIMBURSABLE UNDER SEC. 4.2D OF BOB CIR. A-56.

TO MR. MACY:

THIS REFERS TO YOUR LETTER OF JANUARY 24, 1968, WITH ENCLOSURES, REQUESTING A DECISION FROM OUR OFFICE WHETHER MR. CHARLES E. SPATH, A TRANSFERRED COMMISSION EMPLOYEE, MAY BE REIMBURSED $257 WHICH IS CLAIMED UNDER PUBLIC LAW 89-516, NOW CODIFIED AS 5 U.S.C. 5724 (A).

THE EXPENSE IN QUESTION REPRESENTS ONE HALF OF AN ITEM REFLECTED IN THE CLOSING STATEMENT OF A REAL ESTATE TRANSACTION AS A "SERVICE FEE" OF $514 INCIDENT TO THE PURCHASE OF A RESIDENCE ON A TRANSFER OF DUTY STATION. THE EMPLOYEE HAS BEEN REIMBURSED $257 OF THE TOTAL AMOUNT WHICH THE RECORD SHOWS WAS A SERVICE CHARGE BY THE ALBUQUERQUE FEDERAL SAVINGS AND LOAN ASSOCIATION.

WE UNDERSTAND THAT THE BALANCE OF THE SERVICE FEE ($257) ACTUALLY REPRESENTS AN INSURANCE FEE CHARGED BY THE SOUTHERN MORTGAGE CORPORATION FOR INSURING THE TOP 20 PERCENT OF THE $25,700 LOAN. THIS INSURANCE FEE BENEFITS THE BORROWER TO THE EXTENT THAT HE MAY OBTAIN A LOAN IN EXCESS OF 80 PERCENT OF THE APPRAISAL. THE LENDER (MORTGAGEE) IS THE ONE WHO IS INSURED AND IN THE EVENT OF DEFAULT IN THE LOAN, THE INSURING COMPANY PAYS THE LENDER 20 PERCENT OF THE LOAN. THUS, IT APPEARS THAT THE FEE IS A CHARGE FOR MORTGAGE GUARANTY INSURANCE.

THE QUESTION INVOLVED IS WHETHER MORTGAGE GUARANTY INSURANCE IS REIMBURSABLE UNDER SECTION 4.2D OF BUREAU OF THE BUDGET CIRCULAR NO. A 56, REVISED OCTOBER 12, 1966, WHICH READS IN PART AS FOLLOWS:

"* * * THE COST OF A MORTGAGE TITLE POLICY ON THE DWELLING PURCHASED BY THE EMPLOYEE IS ALSO REIMBURSABLE. COSTS OF OTHER TYPES OF INSURANCE, INCLUDING -RECORD TITLE- POLICIES, OWNERS' TITLE POLICIES, MORTGAGE INSURANCE, AND INSURANCE AGAINST DAMAGE OR LOSS OF PROPERTY ARE NOT REIMBURSABLE. * * *"

MORTGAGE GUARANTY INSURANCE FOR THE PROTECTION OF THE MORTGAGEE AGAINST LOSS IN THE EVENT OF DEFAULT IN THE LOAN IS NOT A TYPE OF INSURANCE FOR WHICH REIMBURSEMENT IS AUTHORIZED UNDER THE REGULATION.