B-222899, MAR 16, 1987

B-222899, MAR 16, 1987

CIVILIAN PERSONNEL - RELOCATION - RESIDENT TRANSACTION EXPENSES - LOAN ORIGINATION FEES - REIMBURSEMENT - AMOUNT DETERMINATION DIGEST: A TRANSFERRED EMPLOYEE CLAIMED A 2.5 PERCENT LOAN ORIGINATION FEE DESIGNATED ON THE SETTLEMENT SHEET AS A SERVICE CHARGE. THE AGENCY LIMITED REIMBURSEMENT TO 1 PERCENT BASED ON ADDITIONAL INFORMATION PROVIDED BY THE BANK AND ON HUD'S ADVICE THAT A 1 PERCENT LOAN ORIGINATION FEE WAS CUSTOMARY IN THE AREA. THE EMPLOYEE'S CLAIM FOR THE ADDITIONAL 1.5 PERCENT FEE IS DENIED SINCE WE ARE NOT BOUND BY THE DESIGNATION ON THE SETTLEMENT SHEET. THE INFORMATION PROVIDED BY HUD CREATES A REBUTTABLE PRESUMPTION AS TO THE PREVAILING RATE FOR LOAN ORIGINATION FEES, AND THE EMPLOYEE HAS NOT PROVIDED SUFFICIENT INFORMATION TO REBUT THIS PRESUMPTION.

JAMES P. MOORE - REIMBURSEMENT OF LOAN ORIGINATION FEE:

THIS DECISION IS IN RESPONSE TO A REQUEST BY MR. WILLIAM J. NICHOLSON, FINANCE AND ACCOUNTING OFFICER, UNITED STATES CORPS OF ENGINEERS, DEPARTMENT OF THE ARMY, FOR AN ADVANCE DECISION AS TO WHETHER THE ENTIRE AMOUNT, $1,580, REPRESENTING 2.5 PERCENT OF THE AMOUNT OF A MORTGAGE, PAID BY MR. JAMES P. MOORE, AN EMPLOYEE OF THE AGENCY, MAY BE REIMBURSED AS A LOAN ORIGINATION FEE. FOR THE REASONS STATED THIS DECISION, REIMBURSEMENT OF AN ADDITIONAL AMOUNT FOR A LOAN ORIGINATION FEE MAY NOT BE AUTHORIZED.

MR. MOORE WAS AUTHORIZED A PERMANENT CHANGE OF STATION IN NOVEMBER 1984 FROM WASHINGTON, D.C. TO TOBYHANNA, PENNSYLVANIA, AND REPORTED FOR DUTY ON JANUARY 28, 1985. HE PURCHASED A RESIDENCE AT MT. POCONO, PENNSYLVANIA, AT A PURCHASE PRICE OF $79,000. ON THE SETTLEMENT STATEMENT, THE LENDING INSTITUTION LISTED AN AMOUNT OF $1,580 WHICH WAS DESIGNATED AS A SERVICE CHARGE, REPRESENTING 2.5 PERCENT OF THE AMOUNT OF THE MORTGAGE. THE FULL CHARGE WAS PAID BY MR. MOORE AT SETTLEMENT. MR. MOORE STATES THAT HE WAS INFORMED BY AN OFFICIAL OF THE LENDING INSTITUTION THAT IT WAS NOT A FINANCE CHARGE AND DID NOT REPRESENT PREPAID INTEREST.

THE PRESIDENT OF THE EMPLOYEE'S LENDING INSTITUTION REPORTED THAT HIS ASSOCIATION HAD FORMERLY REFERRED TO THE CHARGE UNDER CONSIDERATION AS AN ORIGINATION FEE BUT THAT SUCH REFERENCE CAUSED INTERPRETATION PROBLEMS WITH GOVERNMENT AGENCIES. THUS, THEY CHANGED THEIR REFERENCE TO SUCH CHARGE TO A "SERVICE CHARGE" SINCE IT WAS NOT INTENDED TO BE A FINANCE CHARGE AND HENCE SHOULD BE REIMBURSABLE.

IN A SUBSEQUENT LETTER, THE ASSISTANT TREASURER OF THE LENDING INSTITUTION FURTHER STATED THAT AT THE TIME MR. MOORE SETTLED HIS LOAN, IT WAS THEIR POLICY TO REFER TO THE FEE IN QUESTION AS A "SERVICE CHARGE." HOWEVER, THEIR POLICY WAS REVISED SUBSEQUENT TO THAT DATE AND NOW THEIR SETTLEMENT SHEETS SHOW A LOAN ORIGINATION FEE OF 1 PERCENT AND THE BALANCE OF THE FEE AS "DISCOUNT POINTS."

AFTER RECEIPT OF THE ADDITIONAL INFORMATION FROM THE LENDING INSTITUTION, THE DEPARTMENT OF THE ARMY RECONSIDERED THE CLAIM. THE AGENCY CONCLUDED THAT ONLY $632 OF THE TOTAL AMOUNT, 1 PERCENT OF THE MORTGAGE LOAN, WAS REIMBURSABLE AS A LOAN ORIGINATION FEE.

MR. MOORE CONTENDS THAT HE IS LEGALLY ENTITLED TO REIMBURSEMENT OF THE ENTIRE 2.5 PERCENT SERVICE CHARGE AND THAT HE SHOULD BE REIMBURSED THE ADDITIONAL $948 REPRESENTING THE REMAINING 1.5 PERCENT OF THE TOTAL SERVICE CHARGE. HE STATES THAT THE LENDING INSTITUTION DESCRIBED THE ENTIRE AMOUNT OF THE SERVICE CHARGE, $1,580, AS CONSTITUTING A LOAN ORIGINATION FEE, AND THAT THERE IS NO PROVISION FOR A CEILING TO BE PLACED ON THE AMOUNT REIMBURSED FOR THE LOAN ORIGINATION FEE. HE CONSIDERS THE ACTION REDUCING HIS CLAIM BY $948 TO BE ARBITRARY.

THE CORPS OF ENGINEERS CONTENDS THAT REIMBURSEMENT OF $632, 1 PERCENT OF THE MORTGAGE LOAN, WAS AUTHORIZED IN ACCORDANCE WITH POLICY GUIDELINES ISSUED BY THIS OFFICE WHICH STATE THAT AGENCIES SHOULD ALLOW REIMBURSEMENT OF THE AMOUNT OF THE LOAN ORIGINATION FEE WHICH, AS DETERMINED BY THE LOCAL OFFICE OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD), IS CUSTOMARY AND USUAL FOR A PARTICULAR GEOGRAPHIC LOCATION.

THE RECORD DISCLOSES THAT THE HUD PHILADELPHIA REGIONAL OFFICE STATED THAT THE USUAL AND CUSTOMARY CHARGE FOR A LOAN ORIGINATION FEE FOR THE MT. POCONO, PENNSYLVANIA, AREA IS 1 PERCENT. THIS PERCENTAGE AMOUNT WAS INFORMALLY VERIFIED BY THIS OFFICE.

MR. MOORE OBTAINED AND HAS SUPPLIED A LISTING OF AREA BANKS FROM THE SCRANTON TIMES NEWSPAPER WHICH SHOWS LOAN ORIGINATION FEES RANGING FROM 3 PERCENT TO 2 PERCENT. HE STATES THAT THE SCRANTON TIMES IS PUBLISHED APPROXIMATELY 30 MILES FROM HIS RESIDENCE.

DISCUSSION

UNDER THE PROVISIONS OF 5 U.S.C. SEC. 5724A(A)(4) (1982), AN EMPLOYEE MAY BE REIMBURSED FOR THE EXPENSES INCURRED IN THE SALE AND/OR PURCHASE OF A RESIDENCE INCIDENT TO A PERMANENT CHANGE OF STATION. EFFECTIVE OCTOBER 1, 1982, THE IMPLEMENTING REGULATIONS, PARA. 2-6.2D OF THE FEDERAL TRAVEL REGULATIONS, FPMR 101-7 (SUPP. 4, AUGUST 23, 1982), INCORP. BY REF., 41 C.F.R. SEC. 101-7.003 (1985) (FTR), WERE AMENDED TO PERMIT REIMBURSEMENT OF LOAN ORIGINATION FEES AND SIMILAR CHARGES WHICH ARE NOT SPECIFICALLY DISALLOWED BY FTR PARA. 2-6.2(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 VETERANS ADMINISTRATION, 62 COMP.GEN. 456 (1983). REIMBURSEMENT FOR A LOAN ORIGINATION FEE IS LIMITED BY STATUTE TO THE AMOUNT CUSTOMARILY CHARGED IN THE LOCALITY OF THE EMPLOYEE'S NEW RESIDENCE. SEE 5 U.S.C. SEC. 5724A(A)(4), 1982, AS IMPLEMENTED BY FTR PARA. 2-6.2D(1).

WE HAVE HELD THAT WE WILL NOT BE BOUND BY A LENDING INSTITUTION'S CHARACTERIZATION OF A PARTICULAR PAYMENT. SEE ROGER J. SALEM, 63 COMP.GEN. 456, AT 458 (1984). THUS, THE FACT THAT THE LENDING INSTITUTION ORIGINALLY CHARACTERIZED THE ITEM IN QUESTION ON THE SETTLEMENT SHEET AS A SERVICE CHARGE INSTEAD OF A LOAN ORIGINATION FEE DOES NOT AUTOMATICALLY DESIGNATE THE ITEM AS SUCH. SEE ROBERT F. NOVAK, B-220133, MARCH 13, 1986. IN THIS CASE, THE BANK'S STATEMENT OF ITS CHANGE IN POLICY TO SHOW A LOAN ORIGINATION FEE OF 1 PERCENT AND THE BALANCE AS A MORTGAGE DISCOUNT IS A STRONG INDICATION THAT THE ENTIRE AMOUNT WAS NOT MEANT TO COVER THE ADMINISTRATIVE COSTS OF ORIGINATING THE LOAN.

FURTHER, MR. MOORE'S CONTENTION IS INCORRECT WHEN HE STATES THAT THERE IS NO PROVISION IN THE REGULATIONS WHICH PLACES A CEILING ON THE AMOUNT OF REIMBURSEMENT FOR A LOAN ORIGINATION FEE. THE STATUTE AND REGULATIONS IN THE FTR ALLOW REIMBURSEMENT ONLY FOR THE AMOUNT OF THE LOAN ORIGINATION FEE CUSTOMARILY PAID BY A PURCHASER IN THE LOCALITY OF THE RESIDENCE BEING PURCHASED. HERE, THE LOCAL HUD OFFICE HAS ADVISED THAT THE CUSTOMARY RANGE OF LOAN ORIGINATION FEES CHARGED IN THE AREA IS 1 PERCENT. THIS INFORMATION PROVIDED BY HUD CREATES A REBUTTABLE PRESUMPTION AS TO THE PREVAILING RATE. THE DATA SUPPLIED BY MR. MOORE SHOWING THAT HIGHER LOAN ORIGINATION FEES ARE CHARGED BY BANKS IN THE SCRANTON, PENNSYLVANIA, AREA IS INSUFFICIENT TO REBUT THE PRESUMPTION CREATED BY THE HUD DETERMINATION. SEE MARK KROCZYNSKI, 64 COMP.GEN. 306 (1985); SALEM, SUPRA; WILLIAM P. ANNABLE, B-221103, SEPTEMBER 19, 1986.

ACCORDINGLY, REIMBURSEMENT OF THE ADDITIONAL AMOUNT OF $948, REPRESENTING THE 1.5 PERCENT BALANCE OF THE TOTAL SERVICE CHARGE OF $1,580, MAY NOT BE AUTHORIZED.