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Is the Life-of-Loan Fee a Finance Charge?

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Question: 
When we order flood determinations, we also get life-of-loan monitoring for an extra fee. We pass it along to the borrower. Is the determination fee a finance charge?
Answer: 

In part, yes. Reg Z 1026.4(c)(7) exempts real estate related fees from the finance charge for loans that are either a residential mortgage transaction (i.e. to purchase/construct one’s principal dwelling) or secured by real property. Under this exclusion, a standard flood determination fee is NOT a finance charge. However, the Reg Z commentary clarifies that the exclusion is only for fees paid in connection with the initial decision to grant credit. Therefore, a fee for future determinations during the loan term (i.e. life of loan) does not qualify for the exclusion, and IS a finance charge.
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Learn more about Rebekah Leonard’s Flood 101 – Facts to Keep You Afloat in Deep Waters webinar.

First published on 05/22/2022

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