B-218476, SEP 5, 1985

B-218476: Sep 5, 1985

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

EMPLOYEE MAY BE REIMBURSED FOR ONLY 1 PERCENT OF A 3 PERCENT LOAN ORIGINATION FEE WHERE HUD AREA OFFICE ADVISED THAT 1 PERCENT WAS CUSTOMARY IN THE AREA. NO EVIDENCE WAS OFFERED TO OVERCOME THAT PRESUMPTION. EMPLOYEES ARE NOT ENTITLED TO REIMBURSEMENT FOR MORTGAGE DISCOUNTS. LOAN ORIGINATION FEE - CUSTOMARY CHARGE: THE ISSUE IN THIS CASE IS WHETHER A LOAN ORIGINATION FEE OF 3 PERCENT MAY BE REIMBURSED WHERE THE LOCAL OFFICE OF THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD) ADVISED THAT 1 PERCENT WAS CUSTOMARY IN THE AREA. THIS IS A REQUEST FOR AN ADVANCE DECISION FROM CONRAD R. CONTE WAS ADVISED THAT THE ADMINISTRATIVE RECORD WAS AVAILABLE FOR HIS INSPECTION UPON HIS REQUEST AND WAS PROVIDED THE OPPORTUNITY TO COMMENT ON THE AGENCY'S REQUEST FOR A DECISION.

B-218476, SEP 5, 1985

OFFICERS AND EMPLOYEES - TRANSFERS - REAL ESTATE EXPENSES - LOAN ORIGINATION FEES DIGEST: 1. EMPLOYEE MAY BE REIMBURSED FOR ONLY 1 PERCENT OF A 3 PERCENT LOAN ORIGINATION FEE WHERE HUD AREA OFFICE ADVISED THAT 1 PERCENT WAS CUSTOMARY IN THE AREA, AND NO EVIDENCE WAS OFFERED TO OVERCOME THAT PRESUMPTION. OFFICERS AND EMPLOYEES - TRANSFERS - REAL ESTATE EXPENSES - LOAN DISCOUNT FEES 2. WHERE RECORD SHOWS THAT A PORTION OF A 3 PERCENT LOAN ORIGINATION FEE REPRESENTED A MORTGAGE DISCOUNT, AGENCY ACTED PROPERLY IN LIMITING REIMBURSEMENT TO 1 PERCENT. EMPLOYEES ARE NOT ENTITLED TO REIMBURSEMENT FOR MORTGAGE DISCOUNTS, EVEN THOUGH THE DISCOUNT MAY BE CHARACTERIZED BY THE LENDER AS A LOAN ORIGINATION FEE.

WILLIAM A. CONTE-- LOAN ORIGINATION FEE - CUSTOMARY CHARGE:

THE ISSUE IN THIS CASE IS WHETHER A LOAN ORIGINATION FEE OF 3 PERCENT MAY BE REIMBURSED WHERE THE LOCAL OFFICE OF THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD) ADVISED THAT 1 PERCENT WAS CUSTOMARY IN THE AREA. WE FIND THAT THE AGENCY ACTED PROPERLY IN REIMBURSING ONLY 1 PERCENT OF THE 3 PERCENT FEE.

THIS IS A REQUEST FOR AN ADVANCE DECISION FROM CONRAD R. HOFFMAN, DIRECTOR, OFFICE OF BUDGET AND FINANCE, VETERANS ADMINISTRATION, CONCERNING THE CLAIM OF WILLIAM A. CONTE. MR. CONTE WAS ADVISED THAT THE ADMINISTRATIVE RECORD WAS AVAILABLE FOR HIS INSPECTION UPON HIS REQUEST AND WAS PROVIDED THE OPPORTUNITY TO COMMENT ON THE AGENCY'S REQUEST FOR A DECISION.

FACTS

MR. CONTE WAS TRANSFERRED FROM BEDFORD, MASSACHUSETTS, TO ALBANY, NEW YORK, IN JANUARY 1984. HE PURCHASED A RESIDENCE AND SUBMITTED A CLAIM FOR A 3 PERCENT "BORROWERS' ORIGINATION FEE." THE AGENCY STATES THAT IT IMPOSES A 1 PERCENT LIMIT ON REIMBURSEMENT FOR LOAN ORIGINATION FEES IN THE ABSENCE OF CONFLICTING ADVICE FROM THE HUD AS TO WHAT IS CUSTOMARY IN THE LOCALITY.

IN MR. CONTE'S CASE, THE LOCAL OFFICE OF HUD SENT A LETTER DATED APRIL 30, 1984, TO THE AGENCY STATING ONLY THAT "THE EXPENSES INCURRED BY MR. WILLIAM A. CONTE ARE REASONABLE." SINCE THE HUD LETTER DID NOT SPECIFY WHETHER OR NOT 3 PERCENT WAS CUSTOMARY IN THE LOCALITY, THE AGENCY CALLED THE LOCAL HUD OFFICE.

THE MEMO OF THAT PHONE CONVERSATION DATED JUNE 13, 1984, SHOWS THAT HUD ADVISED IT WAS DIFFICULT TO DETERMINE WHAT WAS CUSTOMARY AT THAT TIME BECAUSE OF BANKS WERE CHARGING DIFFERENT RATES, SOMETIMES UP TO 6 PERCENT. LOAN ORIGINATION FEES HAD BEEN SET AT 1 PERCENT BUT BANKS HAD STARTED OFFERING LOWER MORTGAGE RATES IN EXCHANGE FOR HIGHER LOAN ORIGINATION FEES. THE LOCAL HUD OFFICE ADVISED THAT WHEN A 1 PERCENT LOAN ORIGINATION FEE WAS PAID, MORTGAGE RATES WERE 15.5 PERCENT. IF THE PURCHASER WAS WILLING TO PAY A HIGHER LOAN ORIGINATION FEE, THEY COULD GET A LOWER INTEREST RATE ON THEIR MORTGAGE. UNDER THESE CIRCUMSTANCES, HUD STILL CONSIDERED 1 PERCENT AS CUSTOMARY.

BASED UPON THIS ADVICE FROM HUD, THE AGENCY REIMBURSED MR. CONTE FOR 1 PERCENT OF THE LOAN ORIGINATION FEE AND SUSPENDED PAYMENT ON THE REMAINING 2 PERCENT.

ARGUMENTS

MR. CONTE REGISTERED A STRONG COMPLAINT AND REQUESTS REIMBURSEMENT FOR THE FULL 3 PERCENT LOAN ORIGINATION FEE. HE STATES THAT HE MADE A FULL COPY OF CHAPTER 2 OF THE FEDERAL TRAVEL REGULATIONS, AND THERE IS NO MENTION OF A LIMITATION ON LOAN ORIGINATION FEES IN THOSE GUIDELINES. STATES THAT HE WAS ADVISED THAT THE 1 PERCENT LIMIT WAS BASED UPON AN UNPUBLISHED RULING OF THE COMPTROLLER GENERAL AND OBJECTS TO BEING BOUND BY A RULING OF WHICH HE WAS NOT INFORMED.

MR. CONTE ALSO POINTS OUT THAT HE CONSIDERED VARIOUS FINANCING ALTERNATIVES BECAUSE OF THE HIGH INTEREST RATES. HE STATES THAT HE SELECTED A BANK WHICH OFFERED A LOWER MORTGAGE RATE BUT CHARGED A HIGHER LOAN ORIGINATION FEE BECAUSE, BASED ON HIS REVIEW OF THE REGULATIONS, THIS LOOKED MORE ADVANTAGEOUS. HE STATES THAT HAD HE KNOWN ABOUT THE 1 PERCENT LIMIT, HE WOULD HAVE MADE A DIFFERENT DECISION IN SELECTING A MORTGAGE.

WHEN PROVIDED THE OPPORTUNITY FOR ADDITIONAL COMMENTS, MR. CONTE AGAIN EXPRESSED HIS OBJECTION TO BEING DENIED REIMBURSEMENT BASED UPON AN UNPUBLISHED RULING OF WHICH HE WAS NOT INFORMED.

OPINION

FIRST OF ALL, CONTRARY TO MR. CONTE'S ALLEGATION, WE HAVE NEVER ISSUED A DECISION WHICH SAYS THAT LOAN ORIGINATION FEES MUST BE LIMITED TO 1 PERCENT. WHAT OUR DECISIONS HAVE SAID IS THAT AGENCIES MAY NOT PAY MORE THAN THE AMOUNT CUSTOMARILY CHARGED IN THE LOCAL AREA. THIS IS BASED SQUARELY ON THE GOVERNING REGULATIONS. CONTRARY TO MR. CONTE'S ASSERTIONS, CHAPTER 2 OF THE FEDERAL TRAVEL REGULATIONS (FTR), INCORP. REF., 41 C.F.R. SEC. 101-7.003 (1984), SPECIFICALLY LIMITS REIMBURSEMENT OF LOAN ORIGINATION FEES TO THE AMOUNT CUSTOMARILY PAID IN THE LOCALITY OF THE RESIDENCE. WHILE NO SPECIFIC LIMIT IS MENTIONED, THE REGULATIONS DO LIMIT REIMBURSEMENT TO THE AMOUNT CUSTOMARILY CHARGED IN THAT LOCALITY. SEE FTR PARA. 2-6.2D(1) (SUPP. 4, AUG. 23, 1982).

THE REGULATION ALSO PROVIDES THAT LOCAL OFFICES OF HUD WILL PROVIDE INFORMATION AS TO WHAT IS CUSTOMARY IN THE LOCALITY. FTR PARA. 2-6.3C (SUPP. 1, SEPT. 28, 1981). AS NOTED IN GARY A. CLARK, B-213740, FEBRUARY 15, 1984, INFORMATION PROVIDED BY HUD AS TO WHAT IS CUSTOMARY IN THE AREA DOES NOT ESTABLISH INFLEXIBLE RATES. HOWEVER, IT IS CONTROLLING IN THE ABSENCE OF EVIDENCE OVERCOMING THAT PRESUMPTION. IN THIS CASE, MR. CONTE HAS PROVIDED NO EVIDENCE TO OVERCOME THE PRESUMPTION THAT 1 PERCENT WAS CUSTOMARY IN THE LOCALITY AT THE TIME OF HIS PURCHASE OF A RESIDENCE. THIS BASIS, THEREFORE, THE AGENCY ACTED PROPERLY IN REIMBURSING MR. CONTE FOR ONLY 1 PERCENT.

MOREOVER, IT IS CLEAR FROM THE RECORD IN THIS CASE THAT AT LEAST A PART OF THE 3 PERCENT LOAN ORIGINATION FEE CHARGED TO MR. CONTE REPRESENTED A MORTGAGE DISCOUNT OR POINTS. THUS, AS POINTED OUT BY MR. CONTE, HE CHOSE A BANK WHICH CHARGED A 3 PERCENT FEE BECAUSE IT OFFERED A LOWER INTEREST RATE ON THE MORTGAGE. THE LOCAL HUD OFFICE ALSO ADVISED THAT FEES ABOVE THE CUSTOMARILY 1 PERCENT WERE GENERALLY CHARGED IN EXCHANGE FOR LOWER MORTGAGE RATES.

IN LINE WITH THE LONGSTANDING POLICY WHICH PROHIBITS PAYMENT OF EMPLOYEES' INTEREST EXPENSES, FTR PARA. 2-6.2D(2)(B) (SUPP. 4, AUG. 23, 1982) EXPRESSLY PRECLUDES REIMBURSEMENT FOR INTEREST, "POINTS" AND MORTGAGE DISCOUNTS. ROGER J. SALEM, 63 COMP.GEN. 456 (1984). THUS, ON THIS BASIS ALSO, THE AGENCY ACTED PROPERLY IN REIMBURSING MR. CONTE FOR ONLY 1 PERCENT OF THE LOAN ORIGINATION FEE.

FOR THE REASONS STATED ABOVE, MR. CONTE'S CLAIM FOR REIMBURSEMENT OF THE ADDITIONAL 2 PERCENT OF HIS LOAN ORIGINATION FEE MAY NOT BE CERTIFIED FOR PAYMENT.