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#277824 - 11/21/04 04:03 PM A brand new Finance Charge Violation?
Anonymous
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Kirchman has distributed an advisory called "Beware...A New Interpretation of Finance Charges Under Regulation Z." Sorry I don't know how to created a link, but you can find it at www.kirchman.com/comply under Hot Issues. If I read this correctly, wouldn't all mortgage loans be vulnerable to this "new"violaton? We do a final title searche on all mortgages post-closing. In addition, our FDIC exmaminers have always forced us to add the last "inspection" fee on a construction loan into the appraisal fee. For example, if there were 6 inspections during construction, only 5 could be in the Finance Charge, otherwise we'd be written up for over-disclosing the FC. Based on this Kirchman advisory, this would confirm our feeling that the last post-closing inspection fee shouldn't be in the appraisal at all. The article says that FDIC is noting this violation in 40% of banks. I don't know what a "survey" fee is, but has anyone see this interpretation applied to the "inspection fees?.

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#277825 - 11/21/04 08:49 PM Re: A brand new Finance Charge Violation?
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,844
Bloomington, IN
One Previous Discussion on Kirchman's article.

I think how the last fee is counted would depend on whether you do one or two closings. We do two closings - the "final" inspection fee - which is charged to the permanent loan - is treated as an appraisal fee. However if you do one closing (one note) then I think it would be a finance charge.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#277826 - 11/22/04 01:56 PM Re: A brand new Finance Charge Violation?
Anonymous
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I agree, Dan. We do one closing. We've always maintained that the last inspection fee should be disclosed as a FC, but FDIC (Boston Region) says "NO". Now, the emphasis is on the Boston Region because they make us do some pretty strange things. For instance, we had to create an addendum to our Truth-in-Lending disclosure to disclose the mortgage discharge fee 30 years from now when the loan is paid off, because they insist that it must be disclosed. We wanted to make it clear to the customer that the fee we were quoting in 2004 may not be the fee they will be charged in 2034, so we added a page explaining that this was an estimate. But that's another issue. On this one, I think this Kirchman advisory changes the way FDIC should look at the final inspection fee.

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#277827 - 11/22/04 03:21 PM Re: A brand new Finance Charge Violation?
Anonymous
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On construction loans the inspection fee is a prepaid finance charge - that's how we disclose it- and we have one closing.

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#277828 - 11/22/04 04:17 PM Re: A brand new Finance Charge Violation?
Anonymous
Unregistered

In the northeast, the FDIC says that the last inspection fee is not a FC. If you have 6 inspection fees, only 5 are FC's. I disagree, but will be written up for overdisclosing if we put all 6 in the FC

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#277829 - 11/22/04 05:49 PM Re: A brand new Finance Charge Violation?
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 46,844
Bloomington, IN
If you do one closing (one note, no new loan when the permanent phase kicks in), how can the final fee not be a finance charge? It's an inspection fee to determine the value of the collateral AFTER the loan closed!

From the OSC to 226.4

ii. In contrast, the following items are finance charges:

A. Inspection and handling fees for the staged disbursement of construction loan proceeds.

How is the final fee not an inspection fee to determine eligibility for the final disbursement?
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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#277830 - 11/23/04 02:14 PM Re: A brand new Finance Charge Violation?
Anonymous
Unregistered

It's not by virtue of the FDIC saying it's not. We fought this for years and finally just gave in. Washington was no help. Boston Regional said the final inspection fee after construction was the valuation that made the appraisal complete. The appraisal was a "estimate" at what the value would be after completion, but until you have that final inspection to confirm that construction was completed as specified, your appraisal is not complete. So, they throw the final inspection into the appraisal to "complete" it and say it's NOT a FC. I think they are going to have to change their mind now that there is such a fuss over the commentary and the regulation not being the same.

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#277831 - 11/23/04 04:32 PM Re: A brand new Finance Charge Violation?
Anonymous
Unregistered

I asked one of our examiners about this (we are not FDIC), here's his response:

"This interpretation of Reg Z has been used on a selective basis in the past. As far as I know we at the OTS have not utilized the interpretation to the same extent that was mentioned in the article by the FDIC. However, it is always wise to be extra careful with the APRs for residential construction since there is the imposition of inspection fees and the impact of fees on a short term loan such as most construction loans is dramatic. Therefore, it is always better to disclose more of the questionable fees as prepaid finance charges in order to avoid potential reimbursement problems."

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