I have been reading Regulation Z, Section 32 in an effort to verify which fees are subject to the points and fees test.

After stumbling through the definition of "points and fees" and all the related referenced sites of the Reg, I think I am now qualified to be a rocket scientist.

It would appear to me that Hazard Insurance is to be included in the Points and Fees calculation. Is this correct? And if so, as with RESPA, if the insurance is already in place, does it count in the points and fees??

Thanx for your help.

I don't believe it wants the hazard insurances. The HOEPA thrust is predatory lending and the packing of fees. What it wants disclosed are credit protection insurance premiums such as credit life, health, accident and loss of income.

Fed Reg. - 65 FR 81438, FR 12CFR 12/26/00 PROPOSED 65 FR 81438 - Truth In Lending
...The fee-based trigger would be adjusted to include premiums paid at closing for optional credit life and disability insurance and other credit protection products.

The hazard insurance premium would be counted in the points and fees if the agent or company that provides the policy is an "affiliate" as defined under the Bank Holding Company Act. See Regulation Y for a definition of "affiliate" and "control."

Howard, I think I have to disagree. 226.32(b)(1) lists the definition of points and fees as:

i) All items required to be disclosed under § 226.4(a) and 226.4(b), except interest or the time-price differential;
ii) All compensation paid to mortgage brokers; and
iii) All items listed in § 226.4(c)(7) (other than amounts held for future payment of taxes) unless the charge is reasonable, the creditor receives no direct or indirect {{12-31-01 p.6670.02}}compensation in connection with the charge, and the charge is not paid to an affiliate of the creditor; and
iv) Premiums or other charges for credit life, accident, health, or loss-of-income insurance, or debt-cancellation coverage (whether or not the debt-cancellation coverage is insurance under applicable law) that provides for cancellation of all or part of the consumer's liability in the event of the loss of life, health, or income or in the case of accident, written in connection with the credit transaction.

The inclusion of fees paid to affiliates appears to apply only to charges excluded under 226.4(c)(7).

Hazard inurance is considered a finance charge under 226.4 (b), unless the costs of the insurance are disclosed as required by 226.4(d)(2). It is not included in the charges excluded under 226.4(c)(7). So I don't think it is subject to the affiliate receipt rules in 226.32(b)(1)(iii).

I was interrupted this morning before I could post a reply to state the basis for my question, but it appears that pbrinker has already done that.

Yes...what I take to mean "hazard insurance" appears under 226.4(b) as number (8) in the list and is described as:

"Premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, written in connection with a credit transaction."

Items disclosed under 226.4(b) are not subject to the "UNLESS" clause [226.32(b)(1)(iii)]that accompanies items listed under (c)(7).

This is worrisome to me because inclusion of the premium fee would make many H/I and H/E loans subject to the rules of HOEPA (Section 32) including the disclosure that must be given 3 days prior to closing the loan.

RESPA mandates that the premium for hazard insurance be disclosed on the GFE and HUD even if the insurance is already in place....it would be a POC item. But HOEPA is Reg Z, so could it be that if the insurance is already in place, the fee for the premium would not be a direct fee associated with obtaining the loan? HOEPA does not apply to residential mortgage transactions (or HELOCs or Reverse Mortages...which my bank does not offer) so for most subject loans, the hazard insurance is already paid for....already in place.

Any other thoughts?

P.S. Sorry....the original post was from me. I forgot to log in so I was shown as unregistered........Andy...you knew it was me...right?

The short story here is, if you meet the requirements to exclude the hazard insurance premium from the finance charge under 226.4(d), it is not subject to the points and fees trigger under 226.32(a)(1)(ii). Read on if you want the detailed analysis.

Go back to the the beginning of 226.4(b). It says that the finance charge includes the items on the list, except for charges excluded by paragraphs (c) through (e). Section 226.4(d)(2) sets up the requirements for exclusion of hazard insurance from the finance charge.

226.32(b)(1)(i) says that all items required to be disclosed under 226.4(a) and (b) are included in the definition of fees and points for the trigger test. To me, that means that in order to be considered a "fee" subject to the fee trigger test, the hazard insurance must be a finance charge under 226.4.

If you meet the disclosure requirements of 226.4(d), then the hazard insurance is not a finance charge under 226.4(b), and is therefore not subject to inclusion in the points and fees trigger calculation for 226.32(a)(1)(ii).

Since I have never seen any institution include hazard insurance in the finance charge for a lending transaction, if you don't meet the 226.4(d) exclusion requirements, my guess is that you have a reimbursement issue in addition to the failure to provide the disclosure 3 days prior to closing.

You have explained it so eloquently that I "think" I agree. I was trying to draw a line between the definitions of "fees" for the HOEPA test and of "finance charges" for TILA disclosure purposes.

My common sense tells me that there MUST be some way to exclude hazard insurance from the fees considered for HOEPA (Yes, I work in Compliance but have retained some semblance of common sense!!)

So, in conclusion then, fees to consider for most home improvement and home equity loans would be:
Life of Loan flood monitoring fee...which is also considered a PP finance charge(the fee for the determination would be excluded)
Points, Origination or Loan fees
Premiums for Credit Insurance (life or A&H) Loss-of-Income insurance or Debt-cancellation insurance as of 10/01/02

If pbrinker's theory is correct, a fee for loan doc prep and fees for recording lien instruments would also be excluded (c)(7)(ii) and (e)(1)respectively.

Am I correct?

Another point to consider.....

See....BOL Lender Tools for the HOEPA worksheet. Doc Prep is included in the list of fees.

I'm lost.

Sorry to confuse, Shirley. We do a number of "tax-ease" loans where the real purpose of the loan is to purchase a car but they use their home as collateral for tax reasons. We have a "doc Prep" fee that is allowed under state law for preparing the title application. I've taken a conservative approach and called that a finance charge. Per 226.4(7)(ii) I believe that normal real estate doc prep fees are excluded from the finance charge if bona fide and reasonable. You may just need to get rid of this. I tried to put every fee my loan officers could think of on this worksheet.

I agree about that lien recording fees can be excluded if disclosed in accordance with 226.4(e)(1). However, I don't think you can make a blanket statement about doc prep fees. In fact, I think doc prep fees may be includable more often than not.

226.32(b)(1)(iii) says that fees excluded from finance charge under 226.4(c)(7) are INCLUDED in the points and fees test, unless the cahrge is reasonable, the creditor receives no direct or indirect compensation in connection with the charge, and the charge is not paid to an affiliate of the creditor.

So if the doc prep fee is charged by the bank, or an affiliate of the bank, it would be includable in the points and fees trigger test, even though it may be excluded from finance charge.

This was the point Howard was trying to make in an earlier post, and that I tried to clarify only applied to the 4(c)(7) charges.

The points and fees trigger includes ANY charge that would be considered a finance charge under 226.4, PLUS mortgage broker compensation, PLUS any amounts excluded from finance charge under 4(c)(7) that are "unreasonable," result in compensation directly or indirectly to the creditor, or are paid to an affiliate of the creditor.

Don't forget to consider state law in all this. In my state, you may ONLY charge doc prep fees IF you include it in the finance charge. So, in this case, the doc prep fee will be taken into account.

You are probably right. I have been working with this issue from the standpoint of title insurance premiums, which are a 4(c)(7) charge. The title insurance premium is not a finance charge, regardless of who sold it; however, is can be a fee for the HOEPA threshold if it is sold by an affiliate. Mortgage companies avoid this problem by having the owner own both the title agency and the mortgage company individually, or in a qualified grantor trust that is exempt from the definition of a holding company under Regulation Y. Depository insitutions do everything in a holding company structure, so there is little escape from this problem.