B-170787, NOV. 17, 1970

B-170787: Nov 17, 1970

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A LOAN ASSUMPTION FEE PAYABLE ON A FLAT RATE BASIS FOR THE PURCHASE OF A HOME BY A TRANSFERRED EMPLOYEE IS REGARDED AS A FINANCE CHARGE NOTWITHSTANDING THAT SUCH FEE MERELY COVERS ADMINISTRATIVE COSTS AND THEREFORE UNDER SEC. 4.2D OF BOB CIRCULAR A-56 SUCH FEE IS NOT A REIMBURSABLE ITEM. WHEREIN WE HELD THAT A LOAN ASSUMPTION FEE IS SIMILAR TO A LOAN ORIGINATION FEE WHICH LATTER FEE NO LONGER IS REIMBURSABLE UNDER THE PROVISIONS OF SECTION 4.2D. RALPH WAS A FLAT FEE. SUCH FEE YOU SAY IS COMPARABLE TO THE ASSUMPTION FEE LISTED IN THE TABLE OF ESTIMATED CLOSING COSTS PREPARED BY THE FEDERAL HOUSING ADMINISTRATION RANGING FROM $15 TO $25. WE NOTE YOUR STATEMENT THAT IT IS YOUR EXPERIENCE THAT THE ASSUMPTION FEE PAYABLE BY THE PURCHASER IS THE CUSTOMARY PRACTICE IN THE WASHINGTON AREA AND WHILE THE AMOUNT PAID BY MR.

B-170787, NOV. 17, 1970

TRANSFERRED EMPLOYEES - REAL ESTATE TRANSACTION - LOAN ASSUMPTION FEE DECISION CONCLUDING THAT EMPLOYEE TRANSFERRED FROM OGDEN, UTAH, TO WASHINGTON, D.C., MAY NOT BE REIMBURSED FOR A LOAN ASSUMPTION FEE PAYABLE ON A FLAT RATE BASIS FOR PURCHASE OF NEW HOME. A LOAN ASSUMPTION FEE PAYABLE ON A FLAT RATE BASIS FOR THE PURCHASE OF A HOME BY A TRANSFERRED EMPLOYEE IS REGARDED AS A FINANCE CHARGE NOTWITHSTANDING THAT SUCH FEE MERELY COVERS ADMINISTRATIVE COSTS AND THEREFORE UNDER SEC. 4.2D OF BOB CIRCULAR A-56 SUCH FEE IS NOT A REIMBURSABLE ITEM.

TO MR. GORDON W. MARSHALL:

YOUR LETTER OF SEPTEMBER 9, 1970, ACKNOWLEDGED OCTOBER 5, SUBMITS CERTAIN PERTINENT PAPERS AND A VOUCHER FOR $50 SIGNED BY MR. A. CLAIR RALPH, AN EMPLOYEE OF YOUR SERVICE, FOR REIMBURSEMENT OF AN ASSUMPTION FEE INCURRED WHEN MR. RALPH PURCHASED A HOME AT HIS NEW DUTY STATION UPON PERMANENT CHANGE OF STATION FROM OGDEN, UTAH, TO WASHINGTON, D.C., IN AUGUST 1970.

YOU POINT OUT THAT MR. RALPH HAS NOT BEEN ADMINISTRATIVELY REIMBURSED FOR THE FEE BECAUSE OF THE DOUBT AS TO THE LEGALITY THEREOF BASED UPON OUR DECISION B-168870, FEBRUARY 13, 1970, WHEREIN WE HELD THAT A LOAN ASSUMPTION FEE IS SIMILAR TO A LOAN ORIGINATION FEE WHICH LATTER FEE NO LONGER IS REIMBURSABLE UNDER THE PROVISIONS OF SECTION 4.2D, BUREAU OF THE BUDGET CIRCULAR NO. A-56, REVISED JUNE 26, 1969. FURTHER YOU POINT OUT THAT THERE APPEARS TO BE A BASIC DIFFERENCE AS THE FEE THERE INVOLVED REPRESENTED A PERCENTAGE OF THE LOAN WHEREAS HERE THE AMOUNT PAID BY MR. RALPH WAS A FLAT FEE. SUCH FEE YOU SAY IS COMPARABLE TO THE ASSUMPTION FEE LISTED IN THE TABLE OF ESTIMATED CLOSING COSTS PREPARED BY THE FEDERAL HOUSING ADMINISTRATION RANGING FROM $15 TO $25, PERTINENT TO THE VIRGINIA SUBURBS OF WASHINGTON. WE NOTE YOUR STATEMENT THAT IT IS YOUR EXPERIENCE THAT THE ASSUMPTION FEE PAYABLE BY THE PURCHASER IS THE CUSTOMARY PRACTICE IN THE WASHINGTON AREA AND WHILE THE AMOUNT PAID BY MR. RALPH IS SLIGHTLY HIGHER THAN THE ESTIMATED CHARGE SUCH CHARGE APPEARS REASONABLE. YOU ASK THAT WE FURNISH YOU A DETERMINATION IN THIS MATTER.

THE PAPERS YOU SUBMIT WITH THE VOUCHER SHOW CLEARLY THAT THE MORTGAGEE SUBSTITUTED "A. CLAIR RALPH, ET UX" FOR THE PRIOR MORTGAGOR AND CHARGED MR. RALPH A FLAT FEE OF $50 IN CONNECTION THEREWITH. IN OUR DECISION B- 164906, AUGUST 12, 1968, COPY ENCLOSED, WE POINTED OUT THAT IT WAS OUR UNDERSTANDING THAT AN "ASSUMPTION FEE" COMPUTED AS A PERCENTAGE OF THE UNPAID OUTSTANDING LOAN, WAS SIMILAR TO A LOAN APPLICATION OR LOAN ORIGINATION FEE AUTHORIZED REIMBURSABLE UNDER THE LANGUAGE OF SECTION 4.2D OF BUREAU OF THE BUDGET CIRCULAR NO. A-56, REVISED OCTOBER 12, 1966, AS IT THEN EXISTED. WE HAD CONSISTENTLY HELD THEREUNDER THAT SUCH FEES WERE REIMBURSABLE UNTIL THE JUNE 26, 1969 REVISION OF CIRCULAR NO. A-56. POINTED OUT IN OUR DECISIONS B 168359, JANUARY 2, 1970, B-168870, FEBRUARY 13, 1970, AND B-169158, APRIL 15, 1970, COPIES ENCLOSED, THAT THE REVISION PRECLUDED PAYMENT OF SUCH FEES INCURRED AFTER JULY 1, 1969. SEE B-168675, FEBRUARY 17, 1970, COPY ENCLOSED. ALSO IN THOSE DECISIONS WE INDICATED THAT A LOAN ASSUMPTION FEE, A LOAN ORIGINATION FEE, AND A LOAN TRANSFER FEE ARE REGARDED AS FINANCE CHARGES UNDER REGULATION Z OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (12 CFR, PART 226), PUBLISHED FEBRUARY 11, 1969, 34 FR 2002 ET SEQ. EFFECTIVE JULY 1, 1969, IMPLEMENTING THE TRUTH IN LENDING ACT.

SINCE THE ABOVE DECISIONS DID NOT INVOLVE A FLAT FEE PURPORTEDLY CHARGED ONLY FOR ADMINISTRATIVE COSTS, WE INFORMALLY CONTACTED AN OFFICIAL OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WHO ADVISED US THAT A LOAN ASSUMPTION FEE ON A FLAT FEE BASIS, SUCH AS HERE INVOLVED, IS REGARDED AS A FINANCE CHARGE, NOTWITHSTANDING THE ASSERTION THAT SUCH A FEE MERELY COVERS ADMINISTRATIVE COSTS.

ACCORDINGLY, WE FIND NO BASIS FOR PAYMENT OF MR. RALPH'S CLAIM FOR $50 COVERING AN ASSUMPTION FEE CHARGED HIM IN THE PURCHASE OF HIS RESIDENCE ON AUGUST 6, 1970.

THE VOUCHER AND RELATED PAPERS ARE RETURNED HEREWITH.