Tell us
what you think
Our Sponsors
 |
Our Sponsors
|
Question & Answer
Question: Our bank purchases mortgage loans from an originator that charges an underwriting fee. Is this a finance charge or is it exempt from the finance charge because it is a loan secured by real estate?
Answer: I'd say that an underwriting fee is a finance charge. Here's why. Regulation Z contains a list of fees exempt from the finance charge. These are grouped into five categories: fees to review the status of the title, fees to prepare settlement documents such as notary and credit report fees, fees to assess the value of the property, and fees paid into escrow.
All of these exempted fees have something in common - more or less. They are fees or services that a person purchasing property is likely to incur whether or not they use credit in the purchase. These exemptions relate to title perfection and property valuation.
Fees for underwriting simply don't fit into any of these categories. Underwriting occurs to evaluate the credit, not to evaluate the property or perfect title in the property. Underwriting is the process used by the creditor to decide whether to make the loan. This makes it clearly a charge that is related to credit and not one that would be incurred by a customer paying cash for the property. As I read Regulation Z, that makes an underwriting fee a finance charge. Fail to treat it as such, and your disclosures may be outside the tolerances before you even go to closing.
Copyright © 1999 Compliance Action. Originally appeared in Compliance Action, Vol. 4, No. 9, 7/99
Rate This Article
Current Rating For the Feature:
| Total Ratings for this Feature: 0 |
|