B-219026, NOV 29, 1985

B-219026: Nov 29, 1985

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OFFICERS AND EMPLOYEES - TRANSFERS - REAL ESTATE EXPENSES - LOAN ORIGINATION FEE DIGEST: A TRANSFERRED EMPLOYEE PURCHASED A NEW RESIDENCE AND WAS CHARGED 2.25 PERCENT OF HER LOAN AS A "LOAN ORIGINATION FEE.". SHE WAS REIMBURSED 1 PERCENT AND NOW CLAIMS THE REMAINING 1.25 PERCENT. SUCH FEES ARE REIMBURSABLE NOT TO EXCEED AMOUNTS CUSTOMARILY CHARGED IN THE AREA FOR SIMILAR TRANSACTIONS. SINCE HUD ADVISED THAT THE CUSTOMARY RANGE OF LOAN ORIGINATION FEES CHARGED IN THE AREA IS 2-3 PERCENT OF THE LOAN. ABRASS IS SEEKING REIMBURSEMENT FOR THE BALANCE OF A LOAN ORIGINATION FEE THAT SHE PAID INCIDENT TO THE PURCHASE OF A HOME AT HER NEW DUTY STATION. ADVISES US THAT THE AMOUNT PAID IS WITHIN THE CUSTOMARY RANGE CHARGED IN THE LOCALITY OF DR.

B-219026, NOV 29, 1985

OFFICERS AND EMPLOYEES - TRANSFERS - REAL ESTATE EXPENSES - LOAN ORIGINATION FEE DIGEST: A TRANSFERRED EMPLOYEE PURCHASED A NEW RESIDENCE AND WAS CHARGED 2.25 PERCENT OF HER LOAN AS A "LOAN ORIGINATION FEE." SHE WAS REIMBURSED 1 PERCENT AND NOW CLAIMS THE REMAINING 1.25 PERCENT. UNDER FEDERAL TRAVEL REGULATIONS (FTR) PARA. 2-6.2D(1)(B), SUCH FEES ARE REIMBURSABLE NOT TO EXCEED AMOUNTS CUSTOMARILY CHARGED IN THE AREA FOR SIMILAR TRANSACTIONS. SINCE HUD ADVISED THAT THE CUSTOMARY RANGE OF LOAN ORIGINATION FEES CHARGED IN THE AREA IS 2-3 PERCENT OF THE LOAN, THE EMPLOYEE MAY BE REIMBURSED THE ADDITIONAL AMOUNT CLAIMED.

CHRISTINE K. ABRASS - REAL ESTATE EXPENSES - LOAN ORIGINATION FEE:

THE DIRECTOR, OFFICE OF BUDGET AND FINANCE (CONTROLLER), VETERANS ADMINISTRATION (VA), REQUESTS OUR DECISION ON THE CLAIM OF DR. CHRISTINE K. ABRASS. DR. ABRASS IS SEEKING REIMBURSEMENT FOR THE BALANCE OF A LOAN ORIGINATION FEE THAT SHE PAID INCIDENT TO THE PURCHASE OF A HOME AT HER NEW DUTY STATION. THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD), ADVISES US THAT THE AMOUNT PAID IS WITHIN THE CUSTOMARY RANGE CHARGED IN THE LOCALITY OF DR. ABRASS' NEW RESIDENCE. WE HOLD THAT DR. ABRASS MAY BE REIMBURSED FOR THE BALANCE OF HER LOAN ORIGINATION FEE SINCE THE TOTAL FEE IS WITHIN THE CUSTOMARY RANGE QUOTED BY HUD.

BACKGROUND

EFFECTIVE JULY 1, 1984, DR. ABRASS WAS TRANSFERRED FROM SEPULVEDA VA MEDICAL CENTER, LOS ANGELES, CALIFORNIA, TO THE SEATTLE VA MEDICAL CENTER, SEATTLE, WASHINGTON. SHE FINANCED THE PURCHASE OF A NEW RESIDENCE IN SEATTLE, WASHINGTON. SHE FINANCED THE PURCHASE OF A NEW RESIDENCE IN SEATTLE BY OBTAINING A CONVENTIONAL MORTGAGE, AND INCURRED A 2.25 PERCENT LOAN ORIGINATION FEE IN THE AMOUNT OF $4,500.

THE AGENCY ALLOWED DR. ABRASS REIMBURSEMENT FOR A 1 PERCENT LOAN ORIGINATION FEE AS RECOGNIZED BY THE VA "AS A REASONABLE AND CUSTOMARY FEE." THE VA DID SEEK ADVICE FROM ITS LOAN GUARANTY OFFICER IN ITS SEATTLE REGIONAL OFFICE AS TO CUSTOMARY LOAN ORIGINATION FEES CHARGED BY FINANCIAL INSTITUTIONS IN THE SEATTLE AREA FOR PROVIDING A CONVENTIONAL MORTGAGE. THE LOAN GUARANTY OFFICE STATED THAT IT WAS CUSTOMARY FOR LENDING INSTITUTIONS TO CHARGE BOTH THE BUYER AND SELLER 1.5 PERCENT EACH. THE VA ALSO SOUGHT ADVICE FROM THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD) OFFICE IN SEATTLE. ACCORDING TO THE SUBMISSION, ON MAY 2, 1985, THE SEATTLE HUD OFFICE WAS NOT ABLE TO "GIVE AN EXPLICIT ANSWER TO THE CUSTOMARY CHARGE FOR A LOAN ORIGINATION FEE FOR THE DATE OF SETTLEMENT." BASED UPON THIS INFORMATION THE VA DID NOT BELIEVE IT TO BE APPROPRIATE TO MODIFY ITS POSITION TO LIMIT REIMBURSEMENT TO 1 PERCENT.

DR. ABRASS RECLAIMED REIMBURSEMENT FOR THE DISALLOWED 1.25 PERCENT FEE CONTENDING THAT THE TOTAL FEE WAS CUSTOMARY AT THE TIME SHE OBTAINED HER MORTGAGE AND THAT THE VA FAILED TO CITE ANY AUTHORITY FOR ITS ACTION.

AGAINST THIS BACKGROUND, THE AGENCY QUESTIONS WHETHER IT MAY ALLOW DR. ABRASS' CLAIM FOR THE ADDITIONAL 1.25 PERCENT FEE.

DECISION

UNDER 5 U.S.C. SEC. 5724AA)(4) (1982), AN EMPLOYEE MAY BE REIMBURSED FOR THE EXPENSES HE INCURS IN SELLING AND/OR PURCHASING A RESIDENCE PURSUANT TO A PERMANENT CHANGE OF STATION. EFFECTIVE OCTOBER 1, 1982, THE IMPLEMENTING REGULATIONS IN PARAGRAPH 2-6.2D(1) OF THE FEDERAL TRAVEL REGULATIONS, FPMR 101-7 (SUPP. 4, AUGUST 23, 1982) INCORP. BY REF. 41 C.F.R. SEC. 101-7.003 (1984) (FTR), WERE AMENDED TO PERMIT REIMBURSEMENT FOR LOAN ORIGINATION FEES AND SIMILAR CHARGES WHICH ARE NOT SPECIFICALLY DISALLOWED BY FTR PARA. 2-6.2D(2). SEE ROBERT E. KIGERL, 62 COMP.GEN. 534 (1983). THE TERM "LOAN ORIGINATION FEE," AS USED IN FTR PARA. 2-6.2D(1), REFERS TO A LENDER'S FEE FOR ADMINISTRATIVE EXPENSES, INCLUDING COSTS OF ORIGINATING THE LOAN, PROCESSING DOCUMENTS, AND RELATED WORK. SEE 62 COMP.GEN. 456; KIGERL, CITED ABOVE. REIMBURSEMENT FOR A LOAN ORIGINATION FEE IS LIMITED TO THE AMOUNT CUSTOMARILY CHARGED IN THE LOCALITY OF THE EMPLOYEE'S NEW RESIDENCE. SEE 5 U.S.C. SEC. 5724AA)(4), AS IMPLEMENTED BY FTR PARA. 2 6.2D(1). SEE ALSO PATRICIA A. GRABLIN, B-211310, OCTOBER 4, 1983.

A LOAN ORIGINATION FEE, GENERALLY, IS A FEE ASSESSED A MORTGAGOR BY A LENDING INSTITUTION TO COMPENSATE THE LENDER FOR THE TIME AND EXPENSES ASSOCIATED WITH ORIGINATING A LOAN, SUCH AS PROCESSING DOCUMENTS, SECURING A CREDIT INVESTIGATION ON THE PROSPECTIVE MORTGAGOR AND PERFORMING OTHER RELATED ACTIVITIES. WHILE THE MOST COMMON METHOD OF CHARGING FOR THESE EXPENSES IS BY A PERCENTAGE OF THE AMOUNT TO BE LOANED, THE CHARGE FOR THOSE SERVICES CAN ALSO BE STATED AS A SET CHARGE NOT SPECIFICALLY TIED TO THE AMOUNT OF THE LOAN, OR A PERCENTAGE OF THE LOAN PLUS A SET CHARGE. MARK KROCZYNSKI, 64 COMP.GEN. 306 (1985).

A COMPLICATING FEATURE OF A LOAN ORIGINATION FEE IS THAT MANY LENDERS WILL INCLUDE A MORTGAGE DISCOUNT OR "POINTS" IN THE CHARGES MADE, ESPECIALLY WHERE THE METHOD OF CHARGING IS AS A PERCENTAGE OF THE LOAN. WE HAVE DEFINED A MORTGAGE DISCOUNT OR "POINTS" AS BEING PART OF THE PRICE PAID FOR THE HIRE OF MONEY WHERE THE INTEREST RATE CHARGED ON THE LOAN IS BELOW THE MORTGAGE MARKET LEVEL, OR LOWER THAN THE INTEREST RATE INCOME AVAILABLE TO THE LENDING INSTITUTION FROM ALTERNATIVE INVESTMENT OPPORTUNITIES. B-164812, SEPTEMBER 3, 1970; ROGER J. SALEM, 63 COMP.GEN. 456.

IN OUR DECISION ROGER J. SALEM, ABOVE, WE CONSIDERED A SITUATION IN WHICH A PARTICULAR LENDING INSTITUTION CHARGED 5 PERCENT OF THE LOAN AS A LOAN ORIGINATION FEE. AFTER REVIEWING THE RECORD, WE EXPRESSED THE VIEW THAT THE AMOUNT CHARGED WAS SO UNREASONABLE THAT IT COULD NOT POSSIBLY REPRESENT ONLY ADMINISTRATIVE COSTS ASSOCIATED WITH THE MAKING OF THE LOAN OR A REASONABLE APPROXIMATION THEREOF AND CONCLUDED THAT THE EXCESS REPRESENTED A MORTGAGE DISCOUNT ADD ON. WE RULED, THEREFORE, THAT SINCE MUCH OF THE CHARGE REPRESENTED A MORTGAGE DISCOUNT, WE WOULD GIVE GREAT WEIGHT TO THE INFORMATION PROVIDED BY HUD. SINCE THEY DETERMINED THAT THE CUSTOMARY CHARGE IN THE AREA WHERE THE HOME WAS PURCHASED WAS 1 PERCENT OF THE LOAN, WE HELD THAT IN THE ABSENCE OF A DEFINITIVE SHOWING THAT THE CUSTOMARY CHARGE THERE WAS HIGHER, REIMBURSEMENT WAS LIMITED TO 1 PERCENT.

IN THE PRESENT CASE, WE HAVE BEEN INFORMALLY ADVISED BY THE HUD REGIONAL OFFICE SERVICING THE SEATTLE, WASHINGTON, AREA THAT THE CUSTOMARY LOAN ORIGINATION FEES CHARGED BY LENDING INSTITUTIONS SURVEYED IN THE SEATTLE AREA IN JUNE 1984 RANGED BETWEEN 2 AND 3 PERCENT PAID BY THE BUYER. THE 2.25 PERCENT LOAN ORIGINATION FEE ON DR. ABRASS' LOAN WAS WITHIN THIS RANGE. IN VIEW OF THE FACT THAT THE LIMITATION EXPRESSED IN PARAGRAPH 2- 6.2D OF THE FTR IS THAT THE REIMBURSEMENT MAY "NOT EXCEED THE AMOUNTS CUSTOMARILY PAID," AND BASED ON THE INFORMATION FROM HUD, DR. ABRASS MAY BE REIMBURSED THE FULL AMOUNT OF HER FEE OF $4,500. SINCE SHE HAD ALREADY BEEN REIMBURSED $2,000, AN ADDITIONAL $2,500 MAY BE CERTIFIED FOR PAYMENT TO HER FOR HER LOAN ORIGINATION FEE.