B-209945, JUNE 9, 1983, 62 COMP.GEN. 456

B-209945: Jun 9, 1983

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IS REIMBURSABLE UNDER PARA. 2-6.2D OF THE FEDERAL TRAVEL REGULATIONS. WE HOLD THAT THE FUNDING FEE IS NOT REIMBURSABLE UNDER FTR PARA. 2-6.2D BECAUSE THE FEE CONSTITUTES A FINANCE CHARGE UNDER REGULATION Z (12 C.F.R. 226.4 (1982)). REQUESTS A DECISION AS TO WHETHER A VA FUNDING FEE IS REIMBURSABLE AS A FEE OR CHARGE THAT IS. THE FEE IS A USER CHARGE WHICH IS DEPOSITED INTO THE U.S. THE "LOAN FEE" OR "FUNDING FEE" IS NOT THE SAME AS THE VA FEE FOR LOAN APPLICATION. IT IS IMPOSED IN ADDITION TO A LOAN ORIGINATION FEE. WHICH IS A FEE PAYABLE BY THE BORROWER TO THE LENDING INSTITUTION AND IS LIMITED BY THE VA TO AN AMOUNT NOT TO EXCEED 1 PERCENT OF THE AMOUNT OF THE LOAN. 38 C.F.R. 36.4312(D)(2) (1982).

B-209945, JUNE 9, 1983, 62 COMP.GEN. 456

OFFICERS AND EMPLOYEES - TRANSFERS - REAL ESTATE EXPENSES - FINANCE CHARGES - REIMBURSEMENT PROHIBITION - VETERANS ADMINISTRATION FUNDING FEE THE VETERANS ADMINISTRATION (VA) QUESTIONS WHETHER THE VA FUNDING FEE, CONSISTING OF ONE-HALF OF 1 PERCENT OF THE AMOUNT OF A LOAN GUARANTEED OR INSURED BY THE VA, REQUIRED UNDER THE OMNIBUS BUDGET RECONCILIATION ACT OF 1982, IS REIMBURSABLE UNDER PARA. 2-6.2D OF THE FEDERAL TRAVEL REGULATIONS, FPMR 101-7 (SEPTEMBER 1981) (FTR), AS AMENDED. WE HOLD THAT THE FUNDING FEE IS NOT REIMBURSABLE UNDER FTR PARA. 2-6.2D BECAUSE THE FEE CONSTITUTES A FINANCE CHARGE UNDER REGULATION Z (12 C.F.R. 226.4 (1982)).

MATTER OF: VETERANS ADMINISTRATION - RELOCATION EXPENSES - REIMBURSEMENT OF VA FUNDING FEE, JUNE 9, 1983:

CONRAD R. HOFFMAN, ASSISTANT DEPUTY ADMINISTRATOR FOR BUDGET AND FINANCE, VETERANS ADMINISTRATION (VA), REQUESTS A DECISION AS TO WHETHER A VA FUNDING FEE IS REIMBURSABLE AS A FEE OR CHARGE THAT IS, SIMILAR TO A LOAN ORIGINATION FEE WITHIN THE PURVIEW OF PARA. 2-6.2D OF THE FEDERAL TRAVEL REGULATIONS, FPMR 101-7 (SEPTEMBER 1981) (FTR), AS AMENDED (SUPP. 4, OCTOBER 1, 1982).

WE HOLD THAT FTR PARA. 2-6.2D DOES NOT AUTHORIZE REIMBURSEMENT OF THE VA FUNDING FEE SINCE THE FEE CONSTITUTES A FINANCE CHARGE WITHIN THE MEANING OF REGULATION Z, 12 C.F.R. 226.4(A) (1982).

SECTION 1829 OF TITLE 38, U.S.C. ADDED BY THE OMNIBUS BUDGET RECONCILIATION ACT OF 1982, PUBLIC LAW 97-253, 96 STAT. 805 (1982), PROVIDES THAT A "LOAN FEE" IN THE AMOUNT OF ONE-HALF OF 1 PERCENT OF A HOUSING LOAN MADE, GUARANTEED, OR INSURED BY THE VA MUST BE COLLECTED FROM THE VETERAN PURCHASER AND REMITTED TO THE ADMINISTRATOR OF THE VA AS A CONDITION PRECEDENT TO THE VA MAKING, GUARANTEEING, OR INSURING A LOAN. THE FEE IS A USER CHARGE WHICH IS DEPOSITED INTO THE U.S. TREASURY AS MISCELLANEOUS RECEIPTS.

THE "LOAN FEE" OR "FUNDING FEE" IS NOT THE SAME AS THE VA FEE FOR LOAN APPLICATION. IT IS IMPOSED IN ADDITION TO A LOAN ORIGINATION FEE, WHICH IS A FEE PAYABLE BY THE BORROWER TO THE LENDING INSTITUTION AND IS LIMITED BY THE VA TO AN AMOUNT NOT TO EXCEED 1 PERCENT OF THE AMOUNT OF THE LOAN. 38 C.F.R. 36.4312(D)(2) (1982). THE LOAN ORIGINATION FEE COMPENSATES THE LENDER FOR EXPENSES INCURRED IN ORIGINATING THE LOAN, PREPARING DOCUMENTS, AND RELATED WORK.

PRIOR TO THE OCTOBER 1982 REVISION OF THE FTR, LOAN ORIGINATION FEES ASSESSED ON A PERCENTAGE RATE BASIS FOR THE PURPOSE OF DEFRAYING A LENDER'S ADMINISTRATIVE EXPENSES WERE NOT REIMBURSABLE. SPECIFICALLY, FTR PARA. 2-6.2D PROHIBITED REIMBURSEMENT OF EXPENSES INCURRED IN CONNECTION WITH THE SALE OR PURCHASE OF A HOUSE WHENEVER THE EXPENSES WERE DETERMINED TO CONSTITUTE A FINANCE CHARGE WITHIN THE MEANING OF THE TRUTH IN LENDING ACT, TITLE I, PUBLIC LAW 90-321, 82 STAT. 146 (1968) (15 U.S.C. 1601 NOTE), AS IMPLEMENTED BY REGULATION Z, 12 C.F.R. 226.4. SINCE REGULATION Z EXPRESSLY CATEGORIZES SERVICE CHARGES AND LOAN FEES AS FINANCE CHARGES WHEN THEY ARE IMPOSED INCIDENT TO OR AS A CONDITION OF THE EXTENSION OF CREDIT, WE CONSISTENTLY INTERPRETED THE PROVISIONS OF FTR PARA. 2-6.2D AS PRECLUDING REIMBURSEMENT OF LOAN ORIGINATION FEES. SEE, FOR EXAMPLE, STANLEY KEER, B-203630, MARCH 9, 1982.

HOWEVER, THE REVISED PROVISIONS OF FTR PARA. 2-6.2D, EFFECTIVE OCTOBER 1, 1982, SPECIFICALLY AUTHORIZE REIMBURSEMENT OF LOAN ORIGINATION FEES AND SIMILAR CHARGES, PROVIDING IN PERTINENT PART AS FOLLOWS:

D. MISCELLANEOUS EXPENSES.

(1) REIMBURSABLE ITEMS. THE EXPENSES LISTED BELOW ARE REIMBURSABLE IN CONNECTION WITH THE SALE AND/OR PURCHASE OF A RESIDENCE, PROVIDED THEY ARE CUSTOMARILY PAID BY THE SELLER OF A RESIDENCE IN THE LOCALITY OF THE OLD OFFICIAL STATION OR BY THE PURCHASER OF A RESIDENCE AT THE NEW OFFICIAL STATION TO THE EXTENT THEY DO NOT EXCEED AMOUNTS CUSTOMARILY PAID IN THE LOCALITY OF THE RESIDENCE.

(A) FHA OR VA FEE FOR LOAN APPLICATION; (B) LOAN ORIGINATION FEE; (C) COST OF PREPARING CREDIT REPORTS; (D) MORTGAGE AND TRANSFER TAXES; (E) STATE REVENUE STAMPS; (F) OTHER FEES AND CHARGES SIMILAR IN NATURE TO THOSE LISTED ABOVE, UNLESS SPECIFICALLY PROHIBITED IN(2). BELOW:

(2) NONREIMBURSABLE ITEMS. EXCEPT AS OTHERWISE PROVIDED IN (1), , ABOVE, THE FOLLOWING ITEMS OF EXPENSE ARE NOT REIMBURSABLE:

(E) NO FEE, COST, CHARGE, OR EXPENSE DETERMINED TO BE PART OF THE FINANCE CHARGE UNDER THE TRUTH IN LENDING ACT, TITLE I, PUB. L. 90-321, AND REGULATION Z ISSUED IN ACCORDANCE WITH PUB. L. 90-321 BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, UNLESS SPECIFICALLY AUTHORIZED IN (1). ABOVE; * * *

THE VA FUNDING FEE MAY BE CONSIDERED SIMILAR TO A LOAN ORIGINATION FEE WHICH HAS BEEN MADE REIMBURSABLE UNDER THE 1982 AMENDMENT TO THE FTR. NEVERTHELESS, UNDER THE ABOVE-QUOTED FTR PROVISIONS, THOSE FEES AND CHARGES WHICH ARE REGARDED AS SIMILAR TO THE EXPENSES FOR WHICH REIMBURSEMENT IS SPECIFICALLY AUTHORIZED IN FTR PARA. 2-6.2D(1) MAY BE REIMBURSED ONLY IF SUCH EXPENSES DO NOT CONSTITUTE A FINANCE CHARGE WITHIN THE CONTEMPLATION OF THE TRUTH IN LENDING ACT, AS IMPLEMENTED BY REGULATION Z. ACCORDINGLY, IN DETERMINING WHETHER OR NOT AN ITEM OF REAL ESTATE EXPENSE NOT SPECIFICALLY LISTED IN FTR PARA. 2-6.2D(1) IS REIMBURSABLE UNDER THAT PROVISION AS A SIMILAR FEE OR CHARGE, THE ITEM MUST BE EXAMINED IN LIGHT OF REGULATION Z AND DECISIONS OF THIS OFFICE.

THE RELEVANT PART OF REGULATION Z, 12 C.F.R.PART 226, STATES:

226.4 DETERMINATION OF FINANCE CHARGE. (A) GENERAL RULE. EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION, THE AMOUNT OF THE FINANCE CHARGE IN CONNECTION WITH ANY TRANSACTION SHALL BE DETERMINED AS THE SUM OF ALL CHARGES, PAYABLE DIRECTLY OR INDIRECTLY BY THE CUSTOMER, AND IMPOSED DIRECTLY OR INDIRECTLY BY THE CREDITOR AS AN INCIDENT TO OR AS A CONDITION OF THE EXTENSION OF CREDIT, WHETHER PAID OR PAYABLE BY THE CUSTOMER, THE SELLER, OR ANY OTHER PERSON ON BEHALF OF THE CUSTOMER TO THE CREDITOR OR TO A THIRD PARTY, INCLUDING ANY OF THE FOLLOWING TYPES OF CHARGES:

(7) PREMIUM OR OTHER CHARGE FOR ANY OTHER GUARANTEE OR INSURANCE PROTECTING THE CREDITOR AGAINST THE CUSTOMER'S DEFAULT OR ANY OTHER CREDIT LOSS.

APPLYING THESE PROVISIONS, WE HELD THAT A PRIOR VA FUNDING FEE IMPOSED BY THE VETERANS' READJUSTMENT BENEFITS ACT OF 1966, 38 U.S.C. 1818(D) (REPEALED IN 1970), WAS NOT REIMBURSABLE UNDER SECTION 4.2D OF OFFICE OF MANAGEMENT AND BUDGET CIRCULAR A-56 (JUNE 1969), A PREDECESSOR TO FTR PARA. 2-6.2D. 49 COMP.GEN. 483 (1970). SPECIFICALLY, WE DETERMINED THAT THE PRIOR FUNDING FEE CONSTITUTED A FINANCE CHARGE SINCE, LIKE THE CURRENT FUNDING FEE, IT IS PAID BY THE VETERAN PURCHASER INCIDENT TO AND AS A CONDITION PRECEDENT TO HIS OBTAINING FROM THE CREDITOR A LOAN THAT IS GUARANTEED BY THE VA. FURTHER, THE FEE WAS NOT SPECIFICALLY EXCLUDED FROM THE DEFINITION OF A FINANCE CHARGE BY 12 C.F.R. 226.4(E).

THE VA FUNDING FEE IMPOSED BY THE OMNIBUS BUDGET RECONCILIATION ACT OF 1982 IS SUBSTANTIALLY SIMILAR TO THE PRIOR FUNDING FEE DISCUSSED IN 49 COMP.GEN. 483, ABOVE, AND THE FEE IS NOT EXCLUDED FROM THE DEFINITION OF A FINANCE CHARGE BY THE CURRENT PROVISIONS OF 12 C.F.R. 226.4(E). BASED ON THE RATIONALE STATED IN OUR EARLIER DECISION, THE VA FUNDING FEE CONSTITUTES A FINANCE CHARGE WITHIN THE MEANING OF REGULATION Z, SINCE IT WOULD ONLY BE IMPOSED IN CONNECTION WITH THE EXTENSION OF CREDIT, AS OPPOSED TO A CHARGE IMPOSED FOR SERVICES RENDERED WITHOUT REGARD TO WHETHER CREDIT IS SOUGHT OR OBTAINED. SEE DONALD W. ESPELAND, B-186583, MARCH 30, 1978. THEREFORE, REIMBURSEMENT OF THE FEE IS SPECIFICALLY PROHIBITED BY FTR PARA. 2-6.2D, REGARDLESS OF WHETHER THE FEE MAY BE CONSIDERED SIMILAR TO A LOAN ORIGINATION FEE OR ANY OF THE OTHER EXPENSES AUTHORIZED BY FTR PARA. 2-6.2D(1).

ACCORDINGLY, WE HOLD THAT UNDER FTR PARA. 2-6.2D, THE VA FUNDING FEE CONSTITUTES A NONREIMBURSABLE ITEM OF REAL ESTATE EXPENSES.