B-164812, AUG. 1, 1968

B-164812, AUG. 1, 1968

TO MR. EDWARD M. KELLY:

WE REFER TO YOUR LETTER OF JUNE 26, 1968, REQUESTING REVIEW OF GENERAL ACCOUNTING OFFICE SETTLEMENT OF MAY 29, 1968, WHICH DISALLOWED YOUR CLAIM FOR REIMBURSEMENT OF A "LENDER'S LOAN ORIGINATION" FEE INCURRED BY YOU IN THE PURCHASE OF A DWELLING INCIDENT TO THE CHANGE OF YOUR OFFICIAL STATION FROM NEW YORK, NEW YORK, TO WASHINGTON, D.C., IN SEPTEMBER 1967 AS AN EMPLOYEE OF THE FEDERAL AVIATION ADMINISTRATION.

THE RECORD IN YOUR CASE DISCLOSES THAT INCIDENT TO THE PURCHASE OF YOUR DWELLING IN SILVER SPRING, MARYLAND, A "LOAN COMMISSION" OR "ORIGINATION FEE" OF 3 PERCENT OF $22,500 WAS CHARGED BY THE BUILDING ASSOCIATION FOR MAKING A 25-YEAR FIRST TRUST LOAN OF $22,500 AT 6 PERCENT INTEREST PER ANNUM.

IT IS NOTED THAT THE CONTRACT OF SALE APPARENTLY CONTEMPLATED A LESSER LOAN PLACEMENT FEE OF 2 PERCENT TO BE SHARED EQUALLY BY THE SELLER AND THE PURCHASER. HOWEVER, IT APPEARS THAT THE LARGER FEE ACTUALLY CHARGED SIMILARLY WAS SHARED AND THAT YOU ASSUMED PAYMENT OF ONE-HALF OF THE TOTAL ACTUAL FEE OR THE AMOUNT OF $337.50. OF THAT AMOUNT YOU REQUEST REIMBURSEMENT OF $225 OR AN AMOUNT EQUAL TO 1 PERCENT OF THE LOAN, AS A "LENDER'S LOAN ORIGINATION" FEE WITHIN THE PURVIEW OF SECTION 4.2D OF BUREAU OF THE BUDGET CIRCULAR NO. A-56, REVISED OCTOBER 12, 1966.

AS NO DOUBT YOU ARE AWARE, SECTION 4.2D OF THE CIRCULAR PRECLUDES THE REIMBURSEMENT OF CHARGES IN THE NATURE OF MORTGAGE DISCOUNTS (POINTS) OR INTEREST ON LOANS -- CHARGES MADE BY A LENDER OR MORTGAGE BROKER WHICH DIRECTLY OR INDIRECTLY ARE CHARGED FOR THE HIRE OF THE MONEY LOANED.

WE NOTE THAT THE CITIZENS BUILDING AND LOAN ASSOCIATION, INC., REFERS TO THE $337.50 CHARGE IN QUESTION AS BEING FOR "LOAN ORIGINATION" FEE. WHILE THIS MIGHT IMPLY THAT THE ENTIRE FEE IS COVERED BY THE "LENDER'S LOAN ORIGINATION" FEE REFERRED TO IN CIRCULAR NO. A-56, OUR OPINION IS THAT THIS MAY NOT BE SO. THE REASON FOR THIS IS THAT THE TERM "ORIGINATION FEE" IS SOMETIMES HELD TO INCLUDE A COST TO COMPENSATE THE LENDER EITHER FOR THE WORK INVOLVED IN HANDLING ITS PORTION OF THE TRANSACTION OR FOR THE FACT THE INTEREST RATE ON THE LOAN IS BELOW THE MARKET LEVEL, OR BOTH.

THUS, REGARDLESS OF THE TERMINOLOGY USED IN A GIVEN TRANSACTION TO DESCRIBE THE FEES OR CHARGES ASSESSED BY A LENDER, THE QUESTION OF REIMBURSEMENT UNDER THE CIRCULAR TURNS ON WHETHER THE CHARGES ARE MERELY TO REIMBURSE THE LENDER OR BROKER FOR ADMINISTRATIVE COSTS INCURRED BY HIM IN PROCURING THE LOAN OR WHETHER THEY ARE FEES OR "POINTS" WHICH IS PART OF THE PRICE FOR THE HIRE OF THE MONEY RESULTING FROM THE INTEREST RATE ON THE LOAN BEING BELOW THE MARKET LEVEL.

WHILE YOU SEEK REIMBURSEMENT OF ONLY 1 PERCENT OF THE 3 PERCENT FEE, THE PROHIBITION IN SECTION 4.2D OF THE CIRCULAR AGAINST THE REIMBURSEMENT OF "POINTS" OR INTEREST PRECLUDES OUR FAVORABLE CONSIDERATION OF YOUR CLAIM IN THE ABSENCE OF MORE DEFINITIVE INFORMATION AS TO THE EXTENT OF THE FEE IN YOUR CASE THAT IS COVERED BY THE PROHIBITION.

THEREFORE, ON THE PRESENT RECORD, OUR OFFICE SETTLEMENT OF MAY 29, 1968, MUST BE SUSTAINED.