QUESTION
With respect to the Qualified Mortgage points and fees calculation, we
currently include third party processing fees.
However, it is our understanding that many of the larger companies in
the industry exclude third party processing fees from the points and fees
calculation. We would also like to do so provided we are comfortable with the
legality of the practice.
ANSWER
A very good question and in the absence of further guidance from the
regulators, a lender’s position on the issue depends on investors overlays and
the lender’s appetite for risk.
One of the characteristics of a qualified mortgage is that points and
fees may not be excessive. The limits on points and fees vary depending on the
loan amount and are adjusted annually for inflation by the CFPB.
Currently, those limits are as follows:
o
3%, of the loan amount on a loan exceeding
$105,158;
o
$3,155, for a loan greater than or equal to
$63,995, but less than $105,158;
o
5 percent of the loan amount, for a loan greater
than or equal to $21,032, but less than $63,995;
o
$1,052, for a loan greater than or equal to
$13,145, but less than $20,000: 8 percent of the loan amount, for a loan amount
less than $12,500.[i]
As to the inclusion or exclusion of a third-party processing fee, some lenders/investors
assume the position that the processing fee is part of the origination fee and
therefore, even if payable to a third party, must be included in the points and
fees test.
By contrast, many take the position, based upon the regulatory
authority cited below, that so long as the fee meets the following criteria, it
may be excluded from the QM points and fees test:
- The processor or processing company is not
affiliated with the lender or the broker
- As the creditor, the lender receives no
direct or indirect compensation in connection with the charge
- The third party processing
fee is bona fide and reasonable
- The processing company is
properly licensed and registered with NMLS to perform processing services
if required by the law of the state in which the subject property is
located
- If state law does not
require the company to be licensed and registered, the individual
contract processor must be licensed and registered with NMLS to perform
processing services
- The third party processing
fee should be disclosed on the LE in Section B “Services the Borrower Did
Not Shop For”
- The third party processing
fee must be paid directly to the third party processor or processing
company
- The law of the state in
which the subject property is located does not prohibit charging a
consumer a contract processing fee in addition to origination fees
- A copy of the invoice is
retained in the loan file and the fee amount matches the amount on the
Loan Estimate and Closing Disclosure.
As with most “grey area” issues, you should check with your
investor as to their specific overlays and requirements.
Regulatory Authority
(Emphasis added.)
12 CFR 1026.43(b)(9) Points and fees has
the same meaning as in §1026.32(b)(1).
12 CFR 1026.32(b) Definitions. For
purposes of this subpart, the following definitions apply:
(1) In connection with a
closed-end credit transaction, points and fees means the
following fees or charges that are known at or before consummation:
(i) All items included in the
finance charge under §1026.4(a) and (b), except
that the following items are excluded:
* * *
(D) Any bona fide
third-party charge not retained by the creditor, loan originator, or an
affiliate of either, unless the charge is required to be included in points and
fees under paragraph (b)(1)(i)(C), (iii), or (iv) of this section;
(iii) All items listed
in §1026.4(c)(7) (other than amounts held
for future payment of taxes), unless:
(A) The
charge is reasonable;
(B) The creditor receives
no direct or indirect compensation in connection with the charge; and
(C) The
charge is not paid to an affiliate of the creditor.
Official Commentary, Paragraph 32(b)(1)-2
2. Charges paid by parties other than the consumer.
Under §1026.32(b)(1), points and fees may
include charges paid by third parties in addition to charges paid by the
consumer. Specifically, charges paid by third parties that fall within the
definition of points and fees set forth in §1026.32(b)(1)(i)
through (vi) are included in points and fees. In calculating
points and fees in connection with a transaction, creditors may rely on written
statements from the consumer or third party paying for a charge, including the
seller, to determine the source and purpose of any third-party payment for a
charge.
i. Examples—included in
points and fees. A creditor's origination charge paid by a consumer's
employer on the consumer's behalf that is included in the finance charge as
defined in §1026.4(a) or (b), must
be included in points and fees under §1026.32(b)(1)(i),
unless other exclusions under §1026.4 or §1026.32(b)(1)(i)(A) through (F) apply.
In addition, consistent with comment 32(b)(1)(i)-1, a third-party payment of an
item excluded from the finance charge under a provision of §1026.4, while not included in the total
points and fees under §1026.32(b)(1)(i), may
be included under §1026.32(b)(1)(ii) through (vi).
For example, a payment by a third party of a creditor-imposed fee for an
appraisal performed by an employee of the creditor is included in points and
fees under §1026.32(b)(1)(iii). [See
comment 32(b)(1)(i)-1.]
ii. Examples—not
included in points and fees. A charge paid by a third party is not included in points and fees
under §1026.32(b)(1)(i) if the
exclusions to points and fees in §1026.32(b)(1)(i)(A)
through (F) apply. For example, certain bona fide third-party charges not retained by the creditor, loan originator, or an affiliate of either are excluded from points and fees under §1026.32(b)(1)(i)(D), regardless of whether those charges are paid by a third party or the consumer. (Emphasis added.)
Joyce Wilkins Pollison
Director/Legal & Regulatory Compliance
Lenders Compliance Group
[i] All
fee and loan amounts are indexed for inflation. Section 1026.43(e)(3)(ii)
provides that the limits and loan amounts in § 1026.43(e)(3)(i) are
recalculated annually for inflation by the CFPB using the CPI-U index in effect
on June 1. On August 30, 2017, the CFPB
issued its Annual Threshold Adjustments for 2018 which modify the limits and
loan amounts set forth herein. Those adjustments should be reviewed and
implemented each year.
