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#35585 - 10/02/02 08:53 PM Settlement Agent Fee as part of FC
Anonymous
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Sorry, have to go Anon on this. I believe that a settlement agent's fee ($150-$300 in the case of our mortgage loans) charged by our title companies who close our loans IS part of the Finance Charge as required by 226.4(a)2. In a recent audit, I found a number of mortgage loans in our bank that have not included that fee in the finance charge and that in my opinion constitutes potential reimbursable violations. My management disagrees vehemently - - they say most other banks do not include it in the FC. If any of you are in that camp - - on what do you base your position - - that since that fee is one that is charged in a comparable cash transaction, that it is not a FC? Or do you agree with me? I'm looking for some support here or a please give me blunt correction if I'm wrong. Thanks!

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#35586 - 10/02/02 09:45 PM Re: Settlement Agent Fee as part of FC
Dan Persfull Offline
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Bloomington, IN
Commentary Section 226.4--Finance Charge
4(a) Definition.
1. Charges in comparable cash transactions. Charges imposed uniformly in cash and credit transactions are not finance charges. In determining whether an item is a finance charge, the creditor should compare the credit transaction in question with a similar cash transaction. A creditor financing the sale of property or services may compare charges with those payable in a similar cash transaction by the seller of the property or service.
i. For example, the following items are not finance charges:
iii. If the charge in a credit transaction exceeds the charge imposed in a comparable cash transaction, only the difference is a finance charge. For example:
A. If an escrow agent is used in both cash and credit sales of real estate and the agentís charge is $100 in a cash transaction and $150 in a credit transaction, only $50 is a finance charge..

Reg. Sec. 226.4 Finance charge.

(a) Definition. The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction.
(1) Charges by third parties. The finance charge includes fees and amounts charged by someone other than the creditor, unless otherwise excluded under this section, if the creditor:
(i) requires the use of a third party as a condition of or an incident to the extension of credit, even if the consumer can choose the third party; or

You may be able to exclude part or all of the fee if they charge the same amount for comparable cash transaction.

However, we require all purchase transactions to be closed by a settlement agent, therefore we take a conservative approach and include it in the FC based on 226.4(a)(1)(i)

I meant to paste in 4(a)(2) not 4(a)(1). But my answer is the same.
Last edited by dpersfull; 10/02/02 10:05 PM.
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#35587 - 10/02/02 10:05 PM Re: Settlement Agent Fee as part of FC
Peepers Offline
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We have a similar situation as dpersfull. We also require a closing agent and to simplify matters and avoid confusion, we include the whole amount of the fee in the FC.
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#35588 - 10/03/02 02:58 AM Re: Settlement Agent Fee as part of FC
Anonymous
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We do NOT include in FC. Never have! We have been audited by FDIC consistently every 2 years for the last 10 years, and never, ever, has this been an issue...please, don't make it one

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#35589 - 10/03/02 11:28 AM Re: Settlement Agent Fee as part of FC
Suwannee Offline
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Suwannee
Joined: Jun 2002
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Florida
If the fee charged by the settlement agent is a lump sum fee, we do not include it in the finance charge. If the settlement agent itemizes the fees and indicates a specific charge for closing the loan, we include it in the finance charge. For the most part, they itemize the fees.
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#35590 - 10/03/02 01:17 PM Re: Settlement Agent Fee as part of FC
Anonymous
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Original Poster here. How about this issue, Reg Z Guru's? Andy? Richard? I've gotten a split opinion here. Thanks.

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#35591 - 10/03/02 01:22 PM Re: Settlement Agent Fee as part of FC
Anonymous
Unregistered

i was under the impression that if the fee was for their 'attendance' at the closing and was separated, it is a prepaid finance charge.

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#35592 - 10/03/02 01:37 PM Re: Settlement Agent Fee as part of FC
rlcarey Online
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Galveston, TX
I would look to the Reg Z commentary for specific coverage of closing fees:

226. 4(a)(2) Special rule; closing agent charges.

1. General. This rule applies to charges by a third party serving as the closing agent for the particular loan. An example of a closing agent charge included in the finance charge is a courier fee where the creditor requires the use of a courier.

2. Required closing agent. If the creditor requires the use of a closing agent, fees charged by the closing agent are included in the finance charge only if the creditor requires the particular service, requires the imposition of the charge, or retains a portion of the charge. Fees charged by a third-party closing agent may be otherwise excluded from the finance charge under Sec. 226.4. For example, a fee that would be paid in a comparable cash transaction may be excluded under Sec. 226.4(a). A charge for conducting or attending a closing is a finance charge and may be excluded only if the charge is included in and is incidental to a lump-sum closing fee excluded under Sec. 226.4(c)(7).

So, in order to make a determiniation whether you need to include/exclude it in the FC, you have to determine for what services exactly is the closing fee being charged and what would be a charge in a cash transaction.
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#35593 - 10/03/02 02:38 PM Re: Settlement Agent Fee as part of FC
1 Peter 5:7 Offline
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1 Peter 5:7
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TX
Sorry to disagree, but I believe the commentary clarifies why (a)2 was added and that was to ensure that creditors should in most real world cases include settlement agents' fees in the FC. Let's parse paragraph 2 of the commentary and look for guidance:

"2. Required closing agent. If the creditor requires the use of a closing agent, fees charged by the closing agent are included in the finance charge only if the creditor requires the particular service, requires the imposition of the charge, or retains a portion of the charge."

Here the Fed is laying out the general rule from the reg that IF any of the three "or" qualifiers apply, then the settlement agent's fee should be in the FC. Since most banks require a closing agent be used, then in those instances, the fee will be part of the FC.

"Fees charged by a third-party closing agent may be otherwise excluded from the finance charge under Sec. 226.4. For example, a fee that would be paid in a comparable cash transaction may be excluded under Sec. 226.4(a). A charge for conducting or attending a closing is a finance charge and may be excluded only if the charge is included in and is incidental to a lump-sum closing fee excluded under Sec. 226.4(c)(7)."

OK, when the Fed is saying "otherwise excluded" above they are now discussing exceptions to the rule in sentence one. So if NONE of the three "or" qualifiers apply, then the Fed is saying that that the fee is not a FC. Next sentence, by saying "(f)or example . . ", the Fed is citing an example of an exception to the general rule. So if none of the three "or" qualifiers apply, and if the fee would be charged in a comparable cash transaction, then we can conclude that the settlement agent's fee is NOT to be included in the FC. The final sentence ("A charge for conducting or attending . . . )is another example of a case where the fee would be excluded from the FC where the fee is part of a lump sum fee addressed in the reg.

So I don't believe that you can look to the "comparable cash transaction analysis" unless the fee situation is clearly not one of the "or" qualifiers.





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#35594 - 10/03/02 03:16 PM Re: Settlement Agent Fee as part of FC
rlcarey Online
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rlcarey
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Galveston, TX
Ken,

I agree with the portion of your statement that "Since most banks require a closing agent be used,....", however I think the "or" qualifiers do not come into play as often as you think (at leasst in the environments that I have worked). Yes, we require the use of a closing agent, however, we do not pick the specific agent. We let the customer choose the title company (so the first or is out), second, we do not require the imposition of the fee, this is a fee that is imposed by the title company for the closing (so the second or is out) and we definitely never retained any of the charge (violation of RESPA). Am I interpreting this wrong?
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#35595 - 10/03/02 04:26 PM Re: Settlement Agent Fee as part of FC
Anonymous
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Original poster again. So far we have a split of opinion and two opposing compelling arguments from two regular posters. Looks like a draw to me.

How about you Reg Z GURU's? Andy? Richard? AR?

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#35596 - 10/03/02 05:42 PM Re: Settlement Agent Fee as part of FC
David Dickinson Offline
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David Dickinson
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Central City, NE
This is going to help the original poster out, but this has always been a point of disagreement. Therefore, it has always been my advice that if you don't have a rock solid argument why it is not a finance charge, you had best call it a finance charge. Saying that others don't call it a FC, may be true, but it may still be a finance charge for your bank.
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#35597 - 10/06/02 08:55 PM Re: Settlement Agent Fee as part of FC
Richard Insley Online
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Toano, VA
I don't have any great insight to add, but whenever a group of veterans argue to a draw, I'd call the fee a FC. Until the Fed should address this exact question in the Commentary, you'll have to make your case with every examiner you meet. If you say it's a FC, that will be an easy sell.
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#35598 - 10/07/02 12:33 AM Re: Settlement Agent Fee as part of FC
Princess Romeo Offline

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Posts: 8,272
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Banks I have worked at have treated the Settlement Agent fee in this manner:

1. Purchase Money Transaction - the Settlement Agent fee is NOT a finance charge unless the Settlement Agent charges an additional or higher fee (sometimes called a Loan Surcharge or Tie-in Fee) for dealing with a lender. Then, only the Surcharge or Tie-in Fee is considered a Finance Charge.
Rationale - Most sellers will not hand over the deed to their property unless it is through a Settlement Agent regardless if the buyer is paying cash or getting a loan.

2. On a Refinance or Equity loan transaction, the Settlement Agent fee is ALWAYS a finance charge.
Rationale - There is no comparable cash transaction for a refinance or equity loan. It is the lender this time that requires the Settlement Agent, therefore the fee is a finance charge.

(Oh - and I COULD get on my soapbox about lenders being lazy by requiring an Escrow for a Refinance Transaction, especially if they are refinancing their OWN loan, but that is a story for another day when I feel like venting about my personal experience with a major mortgage lender. )
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#35599 - 10/10/02 05:03 AM Re: Settlement Agent Fee as part of FC
Howard Lax Offline
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Howard Lax
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Bloomfield Hills, Michigan
If you read the HUD responses to the issues raised by the Mass. Bankers Assn. a couple years ago, you will find that HUD does not want lenders to lump together the fees for various services - they must be itemized (of course, HUD just did an about face in its proposal to change the GFE and allow packaging of services).
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#35600 - 10/10/02 03:53 PM Re: Settlement Agent Fee as part of FC
Elaine K. Sheehan Offline
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Grand Rapids, MI
Here is copy of an article that Howard Lax did for Compliance Matters a while back which may help you out.

"In Focus" is a Compliance Matters feature in which we present industry professionals whom we have sought out for advice on an element of a broader issue and share with you their response to help clarify your compliance concerns.

We have received a number of inquiries regarding the revised Official Staff Commentary to Regulation Z, specifically concerning the revisions to Section 226.4(a)(2)-2 Special Rule: Closing Agent Charges, which went into effect on October 1, 1998 (63 FR 16669). The comment was revised to include the following: "A charge for conducting or attending a closing is a Finance Charge and may be excluded only if the charge is included in and is incidental to a lump-sum closing fee excluded under Section 226.4(c)(7)." We asked Howard A. Lax, who is a regular participant in seminars regarding federal regulations and residential transactions, to provide his views on this issue. The following are his comments:

Some lenders and investors are confused by recent changes to the Official Staff Commentary ("OSC") to Regulation Z regarding disclosure of the closing agentís fee. Some lenders are excluding the entire closing fee as a Finance Charge when it should be included in the Finance Charge. Some investors are directing lenders to always disclose the closing fee as a Finance Charge. Lenders and investors must recognize that the OSC does not provide a "bright line" or "all-or-nothing" rule regarding disclosure of closing fees. The OSC rule requires some analysis of what the closing agent does and how much is charged for the closing agentís services to determine whether the fee is included in or excluded from the finance charge.

As a general rule, every loan charge required by the lender is a Finance Charge, unless an exception is found in Section 226.4 of Regulation Z. Specific exceptions in Section 226.4(c)(7) of Regulation Z exclude certain loan fees from the Finance Charge for real estate loans and residential mortgage transactions if the fees are bona fide and reasonable in amount. Appraisal fees, credit report fees, title insurance premiums, survey fees, amounts paid into an escrow account, and document preparation fees are examples of fees excluded from the Finance Charge.

Official Staff Comment 226.4(c)(7)2 states that when a settlement service provider charges a lump sum for several services, some of which are Finance Charges and some of which are excluded from the Finance Charge, the lender must generally separate the fees into Finance Charge and non-Finance Charge components. Usually, a fee to attend and conduct the closing of a loan is not excluded from the Finance Charge. However, a lump sum charged for conducting or attending a closing is excluded from the Finance Charge if the majority of the fee charged by the closing agent is for services that are specifically excluded from the Finance Charge; then the lender may exclude the entire closing fee from the Finance Charge.

Let us examine three examples of what a closing agent does for its fee. In each of these examples, we will assume that the lender requires the closing agentís services and the fee is bona fide and reasonable for the services performed by the closing agent.

In the first example, the title company charges a $300 fee for attending the closing. Title insurance fees and loan document preparation fees are separately charged by the title company and the lenderís documentation vendor, respectively. In this example, the closing fee is paid for the title agencyís employee to attend and conduct the closing and is a Finance Charge. The title company does not provide services for this fee that can be excluded from the Finance Charge.

For the second example, an attorney prepares the loan documents, issues the title commitment, and conducts the closing for a lump sum fee of $1500. In this example, the attorney charges one fee to prepare the loan documents, issue the title insurance policy, attend the closing, and close the loan. Since the majority of the fee is for excluded services (loan document preparation and the title insurance premium), the entire closing fee may be excluded from the Finance Charge.

In the third example, the lender charges a $300 closing fee for work performed by its attorney in (1) reviewing the loan documents and the title commitment, (2) confirming that the loan documents are complete and proper, and (3) advising the mortgage company of any title issues that must be cleared prior to the closing of the loan. This attorney does not attend the closing. In this example, the closing fee must be segregated into components that are included and excluded from the Finance Charge. The special rule for fees charged by closing agents does not apply, because the attorney does not attend and conduct the closing. Charges for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents, and charges for title examination are excluded from the Finance Charge for real estate loans. To the extent that the mortgage companyís attorney closing fee is for such services (i.e., for confirming the accuracy and completeness of the loan documents and examining title to the property), the charge may be excluded from the Finance Charge. Any portion of the attorney closing fee which is for other services, or which is not reasonable or bona fide, must be included in the Finance Charge. If there is any doubt as to whether a fee is a Finance Charge or not, that fee should be included.

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#35601 - 10/11/02 04:11 PM Re: Settlement Agent Fee as part of FC
Howard Lax Offline
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Howard Lax
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Bloomfield Hills, Michigan
Thanks Elaine. I forgot about this article I wrote. This article was written before HUD tried to undo the FRB's special rule regarding lump sum closing agent fees. The FRB has not changed its position on lump sum closing fees, and so the article's analysis is still valid. Whether HUD's informal advice to the Mass. Bankers Assn. is worth anything is up in the air, depending on the court jurisdiction you are in and whether you are facing a regulator or a judge.
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#2199283 - 11/28/18 06:26 PM Re: Settlement Agent Fee as part of FC Anonymous
mwint Offline
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Posts: 1
This very informative forum discussion from yore has been very helpful to me. Thanks to all involved!

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#2199291 - 11/28/18 07:44 PM Re: Settlement Agent Fee as part of FC Anonymous
Rocky P Offline
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Posts: 7,258
Florida
mwint - welcome to BOL - there are a lot of insightful discussions in the threads.
You picked one that is 16 years old. :-)
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