B-234969, Sep 14, 1989

B-234969: Sep 14, 1989

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CIVILIAN PERSONNEL - Relocation - Residence transaction expenses - Loan origination fees - Reimbursement DIGEST: This summary letter decision addresses well established rules which have been discussed in previous Comptroller General decisions. Edward Romoff: This is in response to a request from the Internal Revenue Service (IRS). Was reimbursed for a loan origination fee representing 1 percent of the loan amount. The IRS denied reimbursement of a $125 loan tie-in fee paid to an escrow company on the basis that the fee is a nonreimbursable finance charge. The employee argues that the fee was charged for assisting the lender with administrative services in connection with processing the loan.

B-234969, Sep 14, 1989

CIVILIAN PERSONNEL - Relocation - Residence transaction expenses - Loan origination fees - Reimbursement DIGEST: This summary letter decision addresses well established rules which have been discussed in previous Comptroller General decisions. To locate substantive decisions addressing this issue, refer to decisions indexed under the above listed index entry.

Edward Romoff:

This is in response to a request from the Internal Revenue Service (IRS), for a decision whether a transferred employee may be reimbursed for a "loan tie-in fee" in connection with the purchase of a residence at his new duty station. The employee, Mr. Edward Romoff, was reimbursed for a loan origination fee representing 1 percent of the loan amount, but the IRS denied reimbursement of a $125 loan tie-in fee paid to an escrow company on the basis that the fee is a nonreimbursable finance charge. The employee argues that the fee was charged for assisting the lender with administrative services in connection with processing the loan.

Under the Federal Travel Regulations (FTR), a loan origination fee is defined as a fee paid by a borrower to compensate the lender for administrative-type expenses incurred in originating and processing a loan. /1/ In this case, the escrow company assisted the lender in processing the loan, and the fact that the escrow company performed these services, instead of the lender, does not affect the nature of the services. The loan tie-in fee in this case is, in essence, part of the loan origination fee.

Under the FTR, reimbursement for loan origination fees may not exceed 1 percent of the loan amount unless the employee can show, by clear and convincing evidence, that a higher rate does not include prepayment interest, points, or a mortgage discount and that the higher rate is customary in the locality where the residence is located. FTR, Para. 2- 6.2d(1)(b). Since Mr. Romoff has already been reimbursed for a 1 percent loan origination fee charged by his lender, he may be reimbursed for the loan tie-in fee only if he can show, by clear and convincing evidence, that the fee, which is in addition to the loan origination fee already reimbursed, is customary in the locality where his residence is located.

/1/ FTR, para. 2-6.2d(1)(b) (Supp. 26, Nov. 25, 1987), incorp. by ref., 41 C.F.R. Sec. 101-7.003 (1988).