B-169477, JUN. 2, 1970

B-169477, JUN. 2, 1970

TO MR. R. J. SCHULLERY:

WE REFER FURTHER TO YOUR LETTER OF MARCH 31, 1970, IN WHICH YOU REQUEST A DECISION ON THE ALLOWABILITY OF TWO REAL ESTATE EXPENSE ITEMS INCURRED BY MR. JAMES G. CUBBISON INCIDENT TO HIS PERMANENT CHANGE OF STATION FROM LINWOOD, NEW JERSEY, TO WASHINGTON, D. C; IN SEPTEMBER 1969.

MR. CUBBISON SOLD HIS RESIDENCE AT HIS OLD OFFICIAL STATION AND PERMITTED THE PURCHASER TO ASSUME THE MORTGAGE. TO OBTAIN A RELEASE FROM PERSONAL LIABILITY ON THE MORTGAGE, MR. CUBBISON PAID $202.73 TO THE LENDING INSTITUTION.

IN CONNECTION WITH HIS LOAN FOR THE PURCHASE OF A RESIDENCE AT HIS NEW DUTY STATION, MR. CUBBISON HAD TO PAY $739 FOR INSURANCE TO PROTECT THE LENDING INSTITUTION (MORTGAGEE) IN CASE OF HIS DEFAULT.

YOU STATE THAT THE LENDER REQUIRES SUCH INSURANCE WHERE THE AMOUNT OF THE LOAN EQUALS 80 PERCENT OR MORE OF EITHER THE SALE PRICE OR THE APPRAISED VALUE OF THE RESIDENCE.

YOU SUBMIT A RECLAIM VOUCHER IN THE AMOUNT OF $941.73 REPRESENTING THE FOREGOING DESCRIBED ITEMS OF EXPENSE.

THE SALE OF MR. CUBBISON'S RESIDENCE AT HIS OLD DUTY STATION WAS NOT DEPENDENT ON HIS OBTAINING A RELEASE FROM PERSONAL LIABILITY ON THE EXISTING MORTGAGE WHICH WAS ASSUMED BY THE PURCHASER. ALLOWANCES UNDER SECTION 4 OF BUREAU OF THE BUDGET CIRCULAR NO. A-56 ARE LIMITED TO THOSE EXPENSES REQUIRED TO BE PAID BY THE EMPLOYEE INCIDENT TO THE AUTHORIZED REAL ESTATE TRANSACTIONS AS SET FORTH IN SECTION 4.1. ACCORDINGLY, THE $202.73 IS NOT FOR ALLOWANCE.

AS TO THE ITEM OF $739 REPRESENTING MORTGAGE INSURANCE THERE IS FOR CONSIDERATION THE QUESTION OF WHETHER SUCH EXPENSE CONSTITUTES A PART OF THE FINANCE CHARGE INCIDENT TO THE EXTENSION OF CREDIT AS ENVISIONED BY THE TRUTH IN LENDING ACT (TITLE 1 OF PUBLIC LAW 90-321).

SECTION 4.2D OF BUREAU OF THE BUDGET CIRCULAR NO. A-56, REVISED JUNE 26, 1969, READS 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. *** "

SECTION 106 OF THE TRUTH IN LENDING ACT IS IN PART AS FOLLOWS:

"(A) EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION, THE AMOUNT OF THE FINANCE CHARGE IN CONNECTION WITH ANY CONSUMER CREDIT TRANSACTION SHALL BE DETERMINED AS THE SUM OF ALL CHARGES, PAYABLE DIRECTLY OR INDIRECTLY BY THE PERSON TO WHOM THE CREDIT IS EXTENDED, AND IMPOSED DIRECTLY OR INDIRECTLY BY THE CREDITOR AS AN INCIDENT TO THE EXTENSION OF CREDIT, INCLUDING ANY OF THE FOLLOWING TYPES OF CHARGES WHICH ARE APPLICABLE:

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

"(2) SERVICE OR CARRYING CHARGE.

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

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

"(5)PREMIUM OR OTHER CHARGE FOR ANY GUARANTEE OR INSURANCE PROTECTING THE CREDITOR AGAINST THE OBLIGOR'S DEFAULT OR OTHER CREDIT LOSS.

"(C) THE FOLLOWING ITEMS, WHEN CHARGED IN CONNECTION WITH ANY EXTENSION OF CREDIT SECURED BY AN INTEREST IN REAL PROPERTY, SHALL NOT BE INCLUDED IN THE COMPUTATION OF THE FINANCE CHARGE WITH RESPECT TO THAT TRANSACTION:

"(1) FEES OR PREMIUMS FOR TITLE EXAMINATION, TITLE INSURANCE, OR SIMILAR PURPOSES.

"(2) FEES FOR PREPARATION OF A DEED, SETTLEMENT STATEMENT, OR OTHER DOCUMENTS.

"(3) ESCROWS FOR FUTURE PAYMENTS OF TAXES AND INSURANCE.

"(4) FEES FOR NOTARIZING DEEDS AND OTHER DOCUMENTS.

"(5) APPRAISAL FEES.

"(6) CREDIT REPORTS."

REGULATION Z (12 CFR, PART 226) PROMULGATED BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM PURSUANT TO THE TRUTH IN LENDING ACT IS IN PART AS FOLLOWS:

"SEC. 226.4 (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:

"(7) PREMIUM OR OTHER CHARGE FOR ANY OTHER GUARANTEE OR INSURANCE PROTECTING THE CREDITOR AGAINST THE CUSTOMER'S DEFAULT OR OTHER CREDIT LOSS.

"(E) *** THE FOLLOWING CHARGES IN CONNECTION WITH ANY REAL PROPERTY TRANSACTION, PROVIDED THEY ARE BONA FIDE, REASONABLE IN AMOUNT, AND NOT FOR THE PURPOSE OF CIRCUMVENTION OR EVASION OF THIS PART, SHALL NOT BE INCLUDED IN THE FINANCE CHARGE WITH RESPECT TO THAT TRANSACTION:

"(1) FEES OR PREMIUMS FOR TITLE EXAMINATION, ABSTRACT OF TITLE, TITLE INSURANCE, OR SIMILAR PURPOSES AND FOR REQUIRED RELATED PROPERTY SURVEYS.

"(2) FEES FOR PREPARATION OF DEEDS, SETTLEMENT STATEMENTS, OR OTHER DOCUMENTS.

"(3) AMOUNTS REQUIRED TO BE PLACED OR PAID INTO AN ESCROW OR TRUSTEE ACCOUNT FOR FUTURE PAYMENTS OF TAXES, INSURANCE, AND WATER, SEWER, AND LAND RENTS.

"(4) FEES FOR NOTARIZING DEEDS AND OTHER DOCUMENTS.

"(5) APPRAISAL FEES.

"(6) CREDIT REPORTS."

IT IS EVIDENT THAT THE COST OF MORTGAGE INSURANCE COMES WITHIN SECTION 106(A)(5) OF THE TRUTH IN LENDING ACT AND SECTION 226.4(A)(7) OF REGULATION Z (12 CFR, PART 226) IF IT IS A CHARGE FOR PROTECTION OF THE CREDITOR IN THE EVENT OF THE BORROWER'S DEFAULT. WE NOTE THAT SUCH A CHARGE IS NOT OTHERWISE EXCLUDED FROM TREATMENT AS A FINANCE CHARGE BY THE ACT OR THE REGULATIONS.

SINCE, AS PREVIOUSLY INDICATED, THE MORTGAGE INSURANCE HERE INVOLVED WAS FOR PROTECTION OF THE LENDING INSTITUTION IN THE EVENT OF MR. CUBBISON'S DEFAULT ON HIS LOAN, IT IS NOT A REIMBURSABLE ITEM OF REAL ESTATE EXPENSE.

THE VOUCHER IS RETURNED HEREWITH AND MAY NOT BE CERTIFIED FOR PAYMENT.