B-173814, OCT 21, 1971

B-173814: Oct 21, 1971

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"LENDER'S LOAN ORIGINATION FEES" ARE NOT REIMBURSABLE BECAUSE THEY REPRESENT A FINANCE CHARGE WITHIN THE MEANING OF THE REGULATION. REQUESTING A DECISION WHETHER PAYMENT IS AUTHORIZED TO MR. THOMAS WAS TRANSFERRED FROM IDAHO FALLS. THE BROKERAGE FEE WAS ADMINISTRATIVELY DISALLOWED ON THE VOUCHER FOR EXPENSES REIMBURSABLE TO MR. YOU STATE YOU HAVE INTERPRETED THE FEE AS REPRESENTING A PART OF THE FINANCE CHARGE UNDER THE TRUTH IN LENDING ACT. THOMAS IS OF THE OPINION THAT THE FEE IS A LEGITIMATE CLAIM FOR REIMBURSEMENT PURPOSES OR THE LOANING COMPANIES COULD NOT CHARGE IT WITHOUT VIOLATING THE TRUTH IN LENDING ACT. THE COST OF A LOAN EXPENSE FEE IS CUSTOMARILY PAID BY THE PURCHASER. OR INITIAL SERVICE CHARGE" WAS REIMBURSABLE AS A FEE OR CHARGE SIMILAR TO LOAN APPLICATION OR "LENDER'S LOAN ORIGINATION FEE" WITHIN THE MEANING OF SECTION 4.2D OF BUREAU OF MANAGEMENT AND BUDGET CIRCULAR NO.

B-173814, OCT 21, 1971

CIVILIAN EMPLOYEE - PURCHASE OF RESIDENCE INCIDENT TO CHANGE OF STATIONS - "LENDER'S LOAN ORIGINATION FEE" DECISION DISALLOWING CLAIM OF MR. JOHN E. THOMAS, EMPLOYEE OF THE DEPARTMENT OF AGRICULTURE, FOR BROKERAGE FEE PAID BY HIM TO REAL ESTATE AGENT TO PROCESS A LOAN TO PURCHASE A RESIDENCE AT HIS NEW STATION. ACCORDING TO THE EXPRESS LANGUAGE OF SECTION 4.2D, BUREAU OF MANAGEMENT AND BUDGET CIRCULAR NO. A-56, "LENDER'S LOAN ORIGINATION FEES" ARE NOT REIMBURSABLE BECAUSE THEY REPRESENT A FINANCE CHARGE WITHIN THE MEANING OF THE REGULATION.

TO AGRICULTURAL RESEARCH SERVICE:

WE AGAIN REFER TO YOUR LETTER OF AUGUST 5, 1971, REQUESTING A DECISION WHETHER PAYMENT IS AUTHORIZED TO MR. JOHN E. THOMAS ON AN ENCLOSED VOUCHER FOR $497 REPRESENTING A BROKERAGE FEE PAID BY HIM TO A REAL ESTATE FIRM TO PROCESS A LOAN TO PURCHASE A RESIDENCE AT HIS NEW STATION.

BY TRAVEL AUTHORIZATION NO. 91-200 DATED DECEMBER 10, 1970, MR. THOMAS WAS TRANSFERRED FROM IDAHO FALLS, IDAHO, TO CHARLESTON, WEST VIRGINIA, FOR CHANGE OF OFFICIAL STATION. YOU STATE THAT IN JANUARY 1971 MR. THOMAS OBTAINED A LOAN FROM THE "BUCKEYE SAVINGS AND LOAN COMPANY AND E.D. HARDMAN COMPANY REALTORS" FOR THE PURPOSE OF PURCHASING A RESIDENCE AT HIS NEW STATION. THE REAL ESTATE FIRM CHARGED HIM A BROKERAGE FEE OF $497 TO PROCESS THE LOAN.

THE BROKERAGE FEE WAS ADMINISTRATIVELY DISALLOWED ON THE VOUCHER FOR EXPENSES REIMBURSABLE TO MR. THOMAS. YOU STATE YOU HAVE INTERPRETED THE FEE AS REPRESENTING A PART OF THE FINANCE CHARGE UNDER THE TRUTH IN LENDING ACT, TITLE I, PUBLIC LAW 90-321, EFFECTIVE JULY 1, 1969, AND REGULATION Z ISSUED PURSUANT THERETO BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM. HOWEVER, MR. THOMAS IS OF THE OPINION THAT THE FEE IS A LEGITIMATE CLAIM FOR REIMBURSEMENT PURPOSES OR THE LOANING COMPANIES COULD NOT CHARGE IT WITHOUT VIOLATING THE TRUTH IN LENDING ACT.

THE E. D. HARDMAN COMPANY STATES THAT THE FEE CHARGED IN CONNECTION WITH PROCESSING THE LOAN INCLUDED THE FOLLOWING SERVICES:

"1. PREPARATION OF ALL NECESSARY LOAN APPLICATION PAPERS AND THE PROCESSING THEREOF.

"2. INSPECTION AND PRELIMINARY EVALUATION OF THE PROPERTY FOR LOAN PURPOSES.

"3. SECURING COMMITMENT FROM LENDING INSTITUTION IN AMOUNT OF $24,800.

"4. COORDINATING THE PROCESSING OF THE LOAN PAPERS WITH THE LENDING INSTITUTION AND THE ATTORNEY'S OFFICE THROUGH THE FINAL CONSUMMATION OF THE LOAN."

IN CONNECTION WITH THE SALE OF A RESIDENCE, THE COST OF A LOAN EXPENSE FEE IS CUSTOMARILY PAID BY THE PURCHASER. THIS FEE SOMETIMES REFERRED TO AS A "PLACEMENT FEE, COMMISSION LOAN FEE, CLOSING FEE, OR INITIAL SERVICE CHARGE" WAS REIMBURSABLE AS A FEE OR CHARGE SIMILAR TO LOAN APPLICATION OR "LENDER'S LOAN ORIGINATION FEE" WITHIN THE MEANING OF SECTION 4.2D OF BUREAU OF MANAGEMENT AND BUDGET CIRCULAR NO. A-56, REVISED OCTOBER 12, 1966. HOWEVER, WITH THE FURTHER REVISION OF CIRCULAR NO. A-56 AS PROVIDED UNDER TRANSMITTAL MEMORANDUM NO. 5, EFFECTIVE JUNE 26, 1969, THE "LENDER'S LOAN ORIGINATION FEE" WAS REMOVED FROM THE LISTING OF REIMBURSABLE EXPENSES RELATING TO THE ALLOWANCE FOR EXPENSES INCURRED IN CONNECTION WITH THE PURCHASE OF A RESIDENCE. AS REVISED, SECTION 4.2D SPECIFICALLY PROVIDES THAT "NO FEE, COST CHARGE, OR EXPENSE IS REIMBURSABLE WHICH IS DETERMINED TO BE PART OF THE FINANCE CHARGE UNDER THE TRUTH IN LENDING ACT, TITLE I, PUBLIC LAW 90-321, AND REGULATION Z ISSUED PURSUANT THERETO BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM." SERVICES OF THE NATURE DESCRIBED RELATIVE TO THE FEE HERE INVOLVED ARE FINANCE CHARGES WITHIN REGULATION Z. SEE 12 CFR 226.4.

ACCORDINGLY, THE FEE OF $497 CHARGED TO MR. THOMAS FOR THE PURPOSE OF OBTAINING A LOAN TO PURCHASE HIS HOME IS A FINANCE CHARGE WITHIN THE REGULATION AND THEREFORE NOT REIMBURSABLE.

THE VOUCHER WHICH IS RETURNED HEREWITH MAY NOT BE CERTIFIED FOR PAYMENT.