B-168416, JAN 5, 1971

B-168416, JAN 5, 1971

TRANSFERS - INCIDENTAL EXPENSES - MORTGAGE GUARANTEE PREMIUM AFFIRMING ACTION OF CLAIMS DIVISION REQUESTING REFUND OF $470 PREVIOUSLY GRANTED ON THE BASIS THAT MORTGAGE GUARANTEE INSURANCE IS NOT REIMBURSABLE AND PREVIOUS GRANT WAS ERRONEOUSLY MADE TO EMPLOYEE OF THE VETERANS ADMINISTRATION INCIDENT TO HIS TRANSFER TO DURHAM, N.C., AND PURCHASE OF A NEW HOUSE. REIMBURSEMENT FOR MORTGAGE GUARANTEE PREMIUMS IS SPECIFICALLY PROHIBITED BY SECTION 4.2D OF THE BUREAU OF THE BUDGET CIRCULAR NO. A 56 AND SUCH PREMIUMS QUALIFY NEITHER AS COSTS OF TITLE INSURANCE POLICIES REQUIRED TO BE PURCHASED BY A SELLER OF PROPERTY AS A MEANS OF ESTABLISHING MARKETABLE TITLE NOR AS A LOAN ORIGINATION FEE. THE CHARGE IN THIS CASE IS ONE MADE BY AN UNDERWRITER TO PROTECT LENDER IN THE EVENT OF FORECLOSURE.

TO MR. WENDELL H. ARNOLD:

THIS WILL REFER TO YOUR LETTER OF JANUARY 20, 1970, REQUESTING RECONSIDERATION OF OUR CLAIMS DIVISION LETTER TO YOU OF JANUARY 9, 1970, REQUESTING REFUND OF AN AMOUNT YOU WERE PREVIOUSLY REIMBURSED AS A REAL ESTATE TRANSACTION EXPENSE INCIDENT TO TRANSFER OF OFFICIAL STATION. YOUR ORIGINAL CLAIM FOR $470 REPRESENTING THE PREMIUM AND REVIEW FEE PAID FOR A MORTGAGE INSURANCE POLICY ON A RESIDENCE PURCHASED AT DURHAM, NORTH CAROLINA, IN SEPTEMBER 1967 HAS BEEN REVIEWED, TOGETHER WITH ITS INITIAL DISALLOWANCE BY A CLAIMS DIVISION SETTLEMENT OF MARCH 19, 1968, AND SUBSEQUENT ALLOWANCE BY TRANSMITTAL NUMBER 97348 OF JUNE 6, 1968.

YOUR LETTER STATES THAT YOU ARE UNCERTAIN OF THE BASIS FOR REVIEW AND REVERSAL OF THE ORIGINAL CLAIMS DIVISION ACTION. YOU MAKE REFERENCE TO AN EXCERPT FROM OUR DECISION OF JUNE 27, 1967, B-161459, PUBLISHED AT 46 COMP. GEN. 884 ON WHICH YOU RELIED ORIGINALLY IN YOUR LETTER OF MARCH 28, 1968, STATING YOUR CLAIM. THE LANGUAGE OF THE CITED DECISION WHICH YOU BELIEVE SUPPORTS YOUR POSITION IS AS FOLLOWS:

" *** SECTION 4.2 (OF BUREAU OF THE BUDGET CIRCULAR NO. A-56) DOES NOT PROHIBIT REIMBURSEMENT OF THE COST OF INSURANCE POLICIES IN ALL CASES; IN FACT, THE COST OF INSURANCE FOR THE PROTECTION OF THE LENDER, WHEN UNDER THE CUSTOM OF THE AREA THE PURCHASER MUST PAY SUCH COSTS IN ORDER TO SECURE FINANCING, IS SPECIFICALLY ALLOWABLE. *** "

IN OUR DECISION B-162673, JUNE 3, 1968, COPY ENCLOSED, THE CLAIMANT, UNDER CIRCUMSTANCES SIMILAR TO YOURS, RELIED ON THE LANGUAGE OF 46 COMP. GEN. 884 TO SUPPORT HIS CLAIM FOR THE COST OF MORTGAGE GUARANTEE INSURANCE. AS EXPLAINED IN THAT DECISION, THE HOLDING IN 46 COMP. GEN. 884 IS LIMITED TO THE ALLOWANCE OF COSTS OF TITLE INSURANCE POLICIES REQUIRED TO BE PURCHASED BY A SELLER OF PROPERTY AS A MEANS OF ESTABLISHING MARKETABLE TITLE. WE DO NOT CONSTRUE THE DECISION AS AUTHORITY FOR ALLOWANCE OF COSTS OF MORTGAGE GUARANTEE INSURANCE IN VIEW OF THE SPECIFIC PROHIBITION OF SUBSECTION 4.2D AGAINST PAYMENT OF COSTS OF "MORTGAGE INSURANCE."

WE HAVE NOTED YOUR SUGGESTION THAT THE "A.M.I. PREMIUM" WHICH YOU PURCHASED MIGHT BE REGARDED AS A LOAN ORIGINATION FEE AND, THUS, ALLOWABLE UNDER SUBSECTION 4.2D OF CIRCULAR NO. A-56 AS IN EFFECT AT THE TIME YOUR REAL ESTATE TRANSACTION TOOK PLACE. THE FEE YOU WERE REQUIRED TO PAY, AS DESCRIBED IN LETTER OF MAY 24, 1968, BY THE LENDING INSTITUTION INVOLVED IS "A CHARGE MADE BY THE UNDERWRITER, AMERICAN MORTGAGE INSURANCE COMPANY, TO PROTECT THE LENDER IN THE EVENT OF FORECLOSURE OF THE DEED OF TRUST." WE CANNOT AGREE THAT THIS CHARGE RESEMBLES A LOAN ORIGINATION FEE, WHICH MAY BE GENERALLY DESCRIBED AS A SERVICE CHARGE FOR EXPENSES INCIDENT TO OPENING AND CLOSING A LOAN. WE ENCLOSE A COPY OF OUR DECISION B-169740, SEPTEMBER 24, 1970, IN WHICH CHARGES FOR VARIOUS FORMS OF REAL ESTATE TRANSACTION EXPENSES, INCLUDING LOAN ORIGINATION FEES AND MORTGAGE INSURANCE FEES, ARE DISTINGUISHED.

AS A MEANS OF ASSURING YOU THAT OUR DECISIONS WITH RESPECT TO DISALLOWANCE OF MORTGAGE GUARANTEE INSURANCE FEES ARE NOT LIMITED IN APPLICATION TO YOUR AREA OF THE UNITED STATES, WE ENCLOSE COPIES OF OUR DECISIONS B-163419, FEBRUARY 26, 1968, AND B-164416, JUNE 28, 1968. YOU WILL OBSERVE, OUR DECISION THAT SUBSECTION 4.2D MAY NOT BE INTERPRETED TO ALLOW REIMBURSEMENT OF MORTGAGE GUARANTEE PREMIUMS IS UNIVERSALLY APPLIED.

OUR REVIEW OF YOUR CASE LEAVES US NO ALTERNATIVE BUT TO AFFIRM THE JANUARY 9, 1970 ACTION OF OUR CLAIMS DIVISION AND TO ADVISE YOU THAT YOU ARE REQUIRED TO REFUND THE $470 PREVIOUSLY ALLOWED.