We have an agreement with a mortgage broker where we pay them a set percentage of the loan amount for each loan. Currently we disclose this on the Closing Disclosure in section A Charges Paid by Others. My question is should this be included in the finance charge and included in the APR?

I have read 1026.4(a)(3) and the commentary. #3 of the commentary says that all mortgage broker fees are to be included in the finance charge. But it goes on to say that compensation paid by a creditor to a mortgage broker under an agreement is not included as a separate component of a consumer's total finance charge (although this compensation may be reflected in the finance charge if it comes from amounts paid by the consumer to the creditor that are finance charges, such as points and interest).

We have gotten conflicting information from examiners over the years as to if this was a finance charge and included in the APR or not and I need clarification to move forward. I have spoken with our prior compliance officer in depth about this and he indicated that the examiners have looked at it both ways of the years. We are now FDIC. Currently we include it in the APR but I would like to ensure we are doing this correctly and move forward. What I am looking for is more information that I could use to build my case as to why this is or is not a finance charge and part of the APR. I want good footing to stand on if an examiner pushes this issue.

(From reading I do not think it should be part of the finance charge/APR as it is not from any borrower paid fees but I need to change minds here and make them comfortable that we would not have a violation on our hands)

Who is paying the broker - you? If that is true then it is not a finance charge because the consumer is not paying it. They would be paying for it indirectly through your pricing. Treatment for Section 32 purposes might be a different thing.

Yes we pay the broker not the borrower.

How can I prepare an argument for this with examiners if they decide I am wrong and it is a finance charge? We have had several examiners over the years per our prior Compliance Officer state that it is a finance charge and several state that it isn't? I have the regulation but I need more than that to change minds within my institution and to give a comfort level that we will not be cited for excluding it from our finance charge. There is worry that if we exclude it even though it is lender paid and not borrower paid and an examiner does not agree than we would be cited for every one of those loans having an understated finance charge.

Give them this citation and if they balk, tell them to kick it up to the regional office or Washington.

Official Interpretation

4(a)(3) Special Rule; Mortgage Broker Fees

3. Compensation by lender. The rule requires all mortgage broker fees to be included in the finance charge. Creditors sometimes compensate mortgage brokers under a separate arrangement with those parties. Creditors may draw on amounts paid by the consumer, such as points or closing costs, to fund their payment to the broker. Compensation paid by a creditor to a mortgage broker under an agreement is not included as a separate component of a consumer's total finance charge (although this compensation may be reflected in the finance charge if it comes from amounts paid by the consumer to the creditor that are finance charges, such as points and interest).