Matter of: Paul A. Werner, Jr. File: B-248538 Date: September 24, 1992

B-248538: Sep 24, 1992

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Is limited to one percent of the loan amount unless the employee shows by clear and convincing evidence including an itemization of the lender's administrative charges that a higher rate does not include prepaid interest. The higher rate is customarily charged in the locality where the residence is located. The services of the broker must not be duplicated by the lender and must not increase the loan origination fee over what the lender would have charged in the absence of a broker having been involved. Werner was reimbursed for a loan origination fee charged by the lending institution representing one percent of the loan amount but was denied reimbursement of an additional one percent of the loan amount for a mortgage broker fee.

Matter of: Paul A. Werner, Jr. File: B-248538 Date: September 24, 1992

CIVILIAN PERSONNEL Relocation Residence transaction expenses Loan origination fees Reimbursement Amount determination If an employee retains a mortgage broker who performs necessary administrative services that assist the ultimate lender in processing a loan, the employee may be reimbursed for the loan origination fees charged by both the broker and lender. The employee's total reimbursement, however, is limited to one percent of the loan amount unless the employee shows by clear and convincing evidence including an itemization of the lender's administrative charges that a higher rate does not include prepaid interest, points, or a mortgage discount, and the higher rate is customarily charged in the locality where the residence is located. Furthermore, the services of the broker must not be duplicated by the lender and must not increase the loan origination fee over what the lender would have charged in the absence of a broker having been involved.

DECISION

Mr. Paul A. Werner, Jr., an employee of the Federal Aviation Administration (FAA), appeals our Claims Group's settlement [1] denying his claim for a mortgage broker fee he paid as part of the settlement on his new residence incident to a permanent change of station to Washington, DC, from Wright-Patterson Air Force Base, Ohio, in 1990. Based on the present record we affirm the Claims Group's settlement.

Mr. Werner was reimbursed for a loan origination fee charged by the lending institution representing one percent of the loan amount but was denied reimbursement of an additional one percent of the loan amount for a mortgage broker fee. Mr. Werner has furnished copies of documents from the mortgage broker indicating that the broker's fee was for the following services: mortgage program explanation and prequalification; assistance in completion of application; and commitment acceptance and closing coordination.

The Federal Travel Regulations (FTR) prohibit reimbursement for interest on loans, points, and mortgage discounts; and for any fee, cost, charge, or expense determined to be part of the finance charge under the Truth in Lending Act. [2] An exception to this is provided to allow limited reimbursement of a loan origination fee (and similar charges), defined as a fee paid by a borrower to compensate the lender for administrative-type expenses incurred in originating and processing a loan. [3]

We have held that while the regulations contemplate that ordinarily the loan origination fee will be charged by the lender, if it is clear that the administrative services for which such a fee is reimbursable are performed wholly or partially by another party [4] such as a mortgage broker, the employee may be reimbursed for the other party's charge for such services. Roy Dye, el al., 69 Comp.Gen. 340 (1990). It also must be clear that the total fees are not greater than would have been charged without a broker being involved and the charge by the broker is not for services duplicated by the lending institution. Roy Dye, supra. In addition the general rules otherwise applicable to reimbursement for loan origination fees are applicable to such fees charged by brokers or a combination of fees charged by a broker and lending institution. Roy Dye, supra.

In this case, the mortgage broker apparently assisted the lender in processing the loan, and the fact that the mortgage broker performed these services, instead of or in combination with the lender, does not affect the nature of the services. However, as noted previously, Mr. Werner has been reimbursed a one percent loan origination fee charged by the lending institution.

Under the FTR, one of the rules applicable to reimbursement for loan origination or similar fees is that the reimbursable amount may not exceed one percent of the loan amount unless the employee can show, by clear and convincing evidence, including an itemization of the administrative charges, 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. 302-6.2(d)(1)(ii). No such evidence has been furnished regarding the fees charged by the lending institution and mortgage broker in this case. [5]

Accordingly, the Claims Group's denial of the claim for the mortgage broker fee based on the present record is affirmed.

Date: To: Director, Claims Group - Sharon S. Green From: General Counsel - James F. Hinchman

Subject: Paul A Werner, Jr., Z-2867002--B-248538

We are returning your file, Z-2867002. By our decision B-248538, dated today, copy attached, we are sustaining the Claims Group's disallowance of the claim in this case.

1. Z-2867002, April 16, 1991.

2. 41 C.F.R. Sec. 302-6.2(d)(2)(ii) and (v) (1990).

3. 41 C.F.R. Sec. 302-6.2(d)(1)(ii) (1990).

4. A charge for services such as finding a lending institution wiling to make the loan or for commitment of the funds is considered a finance charge which is not reimbursable. Roy Dye, supra, at 341-342.

5. Note that a mere listing of the categories of costs considered to be covered by such fees has not been considered to be clear and convincing evidence of the administrative charges for a particular loan. See Sherree W. Anderson, B-246809, March 31, 1992, and cases cited therein.