B-166512, MAY 7, 1969

B-166512: May 7, 1969

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JORDAN WAS AUTHORIZED A PERMANENT CHANGE OF STATION FROM HAGERSTOWN. HE WAS AUTHORIZED TRAVELING EXPENSES FROM COLLEGE PARK. NO EXPENSES WERE INCURRED UNTIL AUGUST 30. JORDAN RECLAIMS REIMBURSEMENT OF THE AMOUNT OF $372 AS A LENDER'S LOAN PLACEMENT FEE WHICH WAS DENIED BY YOUR AGENCY WHEN HIS ORIGINAL VOUCHER COVERING REAL ESTATE AND OTHER EXPENSES WAS PAID. JORDAN'S RESIDENCE AT COLLEGE PARK PROVIDES AS FOLLOWS: "IF A NEW FHA OR VA LOAN IS TO BE PLACED UNDER THIS CONTRACT. THESE LOAN PLACEMENT FEES ARE BASED ON THE PRESENT MORTGAGE MONEY MARKET AND IT IS FURTHER AGREED THAT THE SELLER WILL COMPLY WITH ANY REASONABLE CHANGE IN SAID LOAN PLACEMENT FEE AT THE TIME OF SETTLEMENT PROVIDED SAID CHANGE IS DUE TO A CHANGE IN THE MORTGAGE MONEY MARKET.'.

B-166512, MAY 7, 1969

TO MRS. MARY L. MOSLEY:

THIS REFERS TO YOUR LETTER OF FEBRUARY 5, 1968 (1969), REFERENCE 24 27, WITH ENCLOSURES, REQUESTING AN ADVANCE DECISION FROM OUR OFFICE WHETHER YOU MAY CERTIFY FOR PAYMENT A VOUCHER FOR $372 IN FAVOR OF MR. A. DEWEY JORDAN, AN EMPLOYEE OF THE FEDERAL HIGHWAY ADMINISTRATION, COVERING REIMBURSEMENT OF A LOAN PLACEMENT FEE IN CONNECTION WITH THE SELLING OF A DWELLING INCIDENT TO A PERMANENT CHANGE OF STATION.

BY TRAVEL AUTHORIZATION DATED JANUARY 18, 1968, MR. JORDAN WAS AUTHORIZED A PERMANENT CHANGE OF STATION FROM HAGERSTOWN, MARYLAND, TO BALTIMORE, MARYLAND. HE WAS AUTHORIZED TRAVELING EXPENSES FROM COLLEGE PARK, MARYLAND, HIS RESIDENCE, TO BALTIMORE. HOWEVER, NO EXPENSES WERE INCURRED UNTIL AUGUST 30, 1968, WHEN HE AND HIS FAMILY MOVED INTO A RESIDENCE HE HAD PURCHASED IN SEVERNA PARK, MARYLAND (NEAR ANNAPOLIS). IN CONNECTION WITH THE SALE OF HIS RESIDENCE IN COLLEGE PARK MR. JORDAN RECLAIMS REIMBURSEMENT OF THE AMOUNT OF $372 AS A LENDER'S LOAN PLACEMENT FEE WHICH WAS DENIED BY YOUR AGENCY WHEN HIS ORIGINAL VOUCHER COVERING REAL ESTATE AND OTHER EXPENSES WAS PAID.

PARAGRAPH 15 OF THE CONTRACT OF SALE FOR MR. JORDAN'S RESIDENCE AT COLLEGE PARK PROVIDES AS FOLLOWS:

"IF A NEW FHA OR VA LOAN IS TO BE PLACED UNDER THIS CONTRACT, THE PURCHASER AGREES TO PAY A LOAN PLACEMENT FEE OF 1 PERCENT OF THE PRINCIPAL SUM OF THE LOAN, AND THE SELLER AGREES TO PAY A LOAN PLACEMENT FEE OF 2 PERCENT OF SAID LOAN. THESE LOAN PLACEMENT FEES ARE BASED ON THE PRESENT MORTGAGE MONEY MARKET AND IT IS FURTHER AGREED THAT THE SELLER WILL COMPLY WITH ANY REASONABLE CHANGE IN SAID LOAN PLACEMENT FEE AT THE TIME OF SETTLEMENT PROVIDED SAID CHANGE IS DUE TO A CHANGE IN THE MORTGAGE MONEY MARKET.'

THE $372 HERE INVOLVED REPRESENTS 2 PERCENT OF A LOAN OF $18,600 SECURED ON THE PREMISES IN COLLEGE PARK BY THE PURCHASER THEREOF. 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. SEE B-162494, OCTOBER 26, 1967.

A SERVICE CHARGE TO COMPENSATE THE MORTGAGEE FOR EXPENSES INCURRED IN ORIGINATING OR CLOSING THE LOAN MAY BE CHARGED TO THE BORROWER. FHA LIMITS THE SERVICE CHARGES ON FHA INSURED MORTGAGES TO 1 PERCENT OF THE MORTGAGE PRINCIPAL. 24 CFR 203.27. WE UNDERSTAND THAT ALTHOUGH THE MORTGAGE LENDER MAKING AN FHA INSURED HOME LOAN IS NOT PERMITTED TO COLLECT MORE THAN THIS AMOUNT FROM THE BORROWER, HE IS NOT PROHIBITED FROM COLLECTING ADDITIONAL AMOUNTS IN THE FORM OF DISCOUNTS FROM THE SELLER OF THE HOME.

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 ORIGINATION ARE REIMBURSABLE BUT EXCLUDES MORTGAGEE DISCOUNTS (POINTS). IT APPEARS TO US THAT THE ITEM OF $372 IS A PART OF THE PRICE FOR THE HIRE OF MONEY, AS DISTINGUISHED FROM CHARGES MADE BY THE MORTGAGEE TO COMPENSATE FOR EXPENSES INCURRED IN ORIGINATING AND CLOSING THE LOAN. COMP. GEN. 213; B-162494, OCTOBER 26, 1967.

ACCORDINGLY, THE VOUCHER RETURNED HEREWITH MAY NOT BE CERTIFIED FOR PAYMENT.

IN CONNECTION WITH THE ORIGINAL PAYMENTS MADE IN THIS CASE, WE ASSUME THAT A DETERMINATION WAS MADE THAT THE SALE OF MR. JORDAN'S HOME AND THE PURCHASE OF A NEW HOME WERE INCIDENT TO THE CHANGE OF HIS OFFICIAL STATION. WE UNDERSTAND THAT MR. JORDAN COMMUTED ON A DAILY BASIS FROM COLLEGE PARK TO HIS OLD STATION AT HAGERSTOWN. SEE B 163955, MARCH 14, 1969, COPY ATTACHED.