B-168359, JAN. 2, 1970

B-168359, JAN. 2, 1970

CIVIL PAY--TRANSFER EXPENSES--LOAN FEE DECISION TO CERTIFYING OFFICER OF FEDERAL AVIATION ADMINISTRATION HOLDING THAT VOUCHER CONCERNING LOAN TRANSFER FEE INCIDENT TO PURCHASE OF RESIDENCE AT TULSA, OKLAHOMA MAY NOT BE CERTIFIED. A LOAN FEE IN AMOUNT OF $204 OR 1 PERCENT OF SELLER'S MORTGAGE ASSUMED BY EMPLOYEE WHEN HE PURCHASED HOME AT NEW STATION INCIDENT TO TRANSFER DATED AUGUST 8, 1969, MUST BE CONSIDERED AS A LOAN ORIGINATION FEE OR TRANSFER FEE WHICH SINCE REVISION OF SECTION 4.2D OF BUREAU OF THE BUDGET CIRCULAR NO. A-56 DATED JUNE 26, 1969 IS NO LONGER A REIMBURSABLE FEE. THEREFORE EMPLOYEE MAY NOT BE REIMBURSED.

TO MR. R. J. SCHULLERY:

ON NOVEMBER 12, 1969, YOU REQUESTED OUR DECISION WHETHER YOU MAY CERTIFY FOR PAYMENT THE AMOUNT OF $204 CLAIMED ON THE ENCLOSED VOUCHER BY MR. DANIEL C. GARDNER, REPRESENTING "LOAN TRANSFER FEE" PAID BY HIM AS EVIDENCED BY A COPY OF THE CLOSING STATEMENT DATED SEPTEMBER 29, 1969, WHICH ACCOMPLISHED SETTLEMENT OF HIS PURCHASE OF A RESIDENCE AT TULSA, OKLAHOMA, HIS NEW OFFICIAL STATION INCIDENT TO HIS TRANSFER FROM NEW ORLEANS, LOUISIANA, UNDER TRAVEL ORDER NO. 051-1024 DATED AUGUST 8, 1969.

YOU SAY THAT THE ABOVE $204 REPRESENTS 1 PERCENT OF THE UNPAID BALANCE ($20,406.52) OF THE SELLER'S MORTGAGE WHICH MR. GARDNER ASSUMED AS PART OF THE FINANCING OF HIS PURCHASE OF THE RESIDENCE. IN THAT REGARD, THE LENDING INSTITUTION WHICH STILL HOLDS THE MORTGAGE HAS INFORMED YOU THAT THE SELLER IS SECONDARILY LIABLE FOR THE INDEBTEDNESS. SO FAR AS IS MATERIAL HERE, THE DIFFERENCE BETWEEN THE MORTGAGE BALANCE AND THE SALE PRICE ($27,000) OF THE RESIDENCE WAS PAID IN CASH BY MR. GARDNER.

IT APPEARS THAT ADMINISTRATIVE ACTION ON A PRIOR VOUCHER SUSPENDED THE SAID "LOAN TRANSFER FEE" AS BEING IN THE NATURE OF A FEE FOR "LENDER'S LOAN ORIGINATION," SUCH AS WAS REMOVED ON JUNE 26, 1969, FROM THE LIST OF REIMBURSABLE EXPENSES IN THE REVISION OF SECTION 4.2D, BUREAU OF THE BUDGET CIRCULAR NO. A-56, REVISED (TRANSMITTAL MEMORANDUM NO. 5). ON THE ENCLOSED VOUCHER MR. GARDNER'S EXPLANATION IS AS FOLLOWS:

"THE $204 IS NOT A LOAN ORIGINATION FEE. IT IS A LOAN TRANSFER FEE. THERE WAS NO NEW LOAN ON THE PURCHASE OF THIS HOME. THE BUYER ASSUMED THE LOAN FROM THE SELLER. THIS CHARGE IS A CUSTOMARY FEE BY HOMESTEADS AND IS EQUAL TO ONE PERCENT OF THE MORTGAGE PRINCIPAL ASSUMED BY THE BUYER."

HOWEVER, THE REVISED SECTION 4.2D ALSO PROVIDES IN PART AS FOLLOWS:

"* * * NOTWITHSTANDING THE ABOVE, NO FEE, COST, CHARGE, OR EXPENSE IS REIMBURSABLE WHICH IS DETERMINED TO BE A PART OF THE FINANCE CHARGE UNDER THE TRUTH IN LENDING ACT, TITLE I, PUBLIC LAW 90-321, AND REGULATION Z ISSUED PURSUANT THERETO BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM. * * *"

SUPPLEMENTING SECTION 106 OF THE ACT (15 U.S.C. 1605), SECTION 226.4 OF THE SAID REGULATION Z (12 CFR, PART 226), PUBLISHED FEBRUARY 11, 1969, 34 F.R. 2002 ET SEQ; EFFECTIVE JULY 1, 1969, PROVIDES IN PART AS FOLLOWS:

SEC. 226.4 DETERMINATION OF FINANCE CHARGE.

"(A) GENERAL RULE. EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION, THE AMOUNT OF THE FINANCE CHARGE IN CONNECTION WITH ANY TRANSACTION SHALL BE DETERMINED AS THE SUM OF ALL CHARGES, PAYABLE DIRECTLY OR INDIRECTLY BY THE CUSTOMER, AND IMPOSED DIRECTLY OR INDIRECTLY BY THE CREDITOR AS AN INCIDENT TO OR AS A CONDITION OF THE EXTENSION OF CREDIT, WHETHER PAID OR PAYABLE BY THE CUSTOMER, THE SELLER, OR ANY OTHER PERSON ON BEHALF OF THE CUSTOMER TO THE CREDITOR OR TO A THIRD PARTY, INCLUDING ANY OF THE FOLLOWING TYPES OF CHARGES:

"(1) INTEREST, TIME PRICE DIFFERENTIAL, AND ANY AMOUNT PAYABLE UNDER A DISCOUNT OR OTHER SYSTEM OF ADDITIONAL CHARGES.

"(2) SERVICE, TRANSACTION, ACTIVITY, OR CARRYING CHARGE.

"(3) LOAN FEE, POINTS, FINDER'S FEE, OR SIMILAR CHARGE.

"(4) FEE FOR AN APPRAISAL, INVESTIGATION, OR CREDIT REPORT.

"(8) ANY CHARGE IMPOSED BY A CREDITOR UPON ANOTHER CREDITOR FOR PURCHASING OR ACCEPTING AN OBLIGATION OF A CUSTOMER IF THE CUSTOMER IS REQUIRED TO PAY ANY PART OF THAT CHARGE IN CASH, AS AN ADDITION TO THE OBLIGATION, OR AS A DEDUCTION FROM THE PROCEEDS OF THE OBLIGATION."

SUBSECTION 226.8(K) IS AS FOLLOWS:

"(K) ASSUMPTION OF AN OBLIGATION. ANY CREDITOR WHO ACCEPTS A SUBSEQUENT CUSTOMER AS AN OBLIGOR UNDER AN EXISTING OBLIGATION SHALL MAKE THE DISCLOSURES REQUIRED BY THIS PART TO THAT CUSTOMER BEFORE HE BECOMES SO OBLIGATED. IF THE OBLIGATION SO ASSUMED IS SECURED BY A FIRST LIEN OR EQUIVALENT SECURITY INTEREST ON A DWELLING, AND THE ASSUMPTION IS MADE FOR THE SUBSEQUENT CUSTOMER TO ACQUIRE THAT DWELLING, THAT OBLIGATION SHALL BE CONSIDERED A LOAN MADE TO FINANCE THE PURCHASE OF THAT DWELLING."

IN CONNECTION WITH THE SALE OF A RESIDENCE, THE COST OF A PERCENTAGE LOAN EXPENSE FEE IS SOMETIMES REFERRED TO AS A "PLACEMENT FEE, COMMISSION LOAN FEE, CLOSING FEE, OR INITIAL SERVICE CHARGE" AND SUCH A CHARGE TO THE PURCHASER (BORROWER/OBLIGOR) WAS REIMBURSABLE UNDER SECTION 4.2D PRIOR TO JUNE 26, 1969, AS A FEE OR CHARGE SIMILAR TO A LOAN APPLICATION OR LENDER'S LOAN ORIGINATION FEE. AN "ASSUMPTION FEE" -- OR LOAN TRANSFER FEE -- LIKEWISE HAS BEEN HELD BY OUR OFFICE AS A FEE SIMILAR TO A LOAN ORIGINATION FEE. HOWEVER, WITH THE REVISION OF JUNE 26, 1969, "LENDER'S LOAN ORIGINATION FEE" AND SIMILAR FEES NO LONGER ARE REIMBURSABLE AND NEITHER ARE CHARGES DETERMINED TO BE FINANCE CHARGES UNDER SECTION226.4(A) OF REGULATION Z, AS QUOTED ABOVE.

THEREFORE, THE AMOUNT OF $204 ON THE VOUCHER WHICH IS RETURNED HEREWITH MAY NOT BE CERTIFIED FOR PAYMENT.