RE Loan * APR

I was reviewing a website of another bank to see how they quote APR for a mortgage loan......a statement was included that "the APRs are based on a $79.00 tax service fee, $20.00 flood cert fee and a $150.00 doc prep fee".........I was under the impression that a Doc Prep fee was excludable from finance charge.....as I researched "bankersonline threads" and Reg Z, I've become confused about what is a finance charge.......Doc Prep Fee?/Loan Processing Fee?.........We charge a processing fee and exclude it from the FC and therefore do not subtract that fee from the amount financed to determine the stated APR when quoting rates.....I cannot find where charging a Processing fee is a finance charge even though on 7/01/02 a post was made from BonnieM indicating "Processing Fee" IS a finance Charge.......So...I'm confused.... ALSO, in calculating APRs that are quoted to consumers does anyone include odd days interest? How about "closing or escrow fee" (line 1101 on HUD)? We only use $17 Flood Cert fee plus any points.......

Truth in Lending and Regulation Z allow a lender to charge a doc prep fee without its becoming a finance charge. This is based on the assumption that when purchasing a home you would be preparing documents whether or not credit was involved.

The confusion comes when we try to decide what a doc prep fee is. Basically, you can name the fee whatever you want. It should be for the purpose of document preparation and it should only be charged once. Some lenders try to pad their fees by charging a variety of fees with creative names and then try to claim them as all exempt from TIL because they are doc prep fees. You are only allowed one doc prep fee. Everything else goes into the finance charge. So the purpose more than the name is what you should be looking for.

As for quoting APRs, use an example balance such as $100,000 and take into account the finance charges that would usually be charged. For a mortgage loan, if you request life of loan flood determination, then the life of loan fee should be included in the finance charge and thus the APR.

As to the question of odd days' interest: like PMI, if ODI only applies under certain circumstances, your advertising need not reflect all of these possibilities, unless they are an integral part of the product (like govt MI on an FHA loan). In any case, the ODI and the days you are buying are almost a wash. Ususally there's no more than a speck of difference in the APR if you put both into the calculation or leave both out.

Thank you both for responding.....any thoughts about "Processing fees" or "Doc Prep fees"....if we charge these, regardless, should we include in our quoted APR Calc?
The OTHER banks' website I reviewed included "doc prep fees" which I thought was not a FC and my bank charges "Processing fees" but does not include in FC's ......

I think you have to first ask what is the processing fee actually for? For example, if you charge a doc prep fee of $150 AND a processing fee of $200, I would say that the processing fee is a FC since you already have a doc prep fee. If you charge just that processing fee and it is strictly for doc prep, then it would not be. The key to me is that I first have to look at what is the fee for, then what is it called and compare that to what Reg. Z says. You also have to look at whether or not the fee is bona fide and reasonable. For example, if you charge $650 for a processing fee that you define as being doc prep, is that really bona fide and reasonable? Probably not if all the other lenders in your area are charging $150 for a doc prep fee that they are calling a doc prep fee. On your question of the "closing" fees - take a look at the commentary §226.4(a)(2)-2. Isn't Reg. Z fun?

I am bringing this "thread" back to life to ask a question. Should a "processing fee" be considered a finance charge if you have already charged an "origination fee" which IS finance charge?