QUESTION
As a lender, we are exploring an opportunity to open an affiliated
insurance company. However, we are concerned about fees, as fees to affiliates
are included in the qualified mortgage (QM) points and fees calculation. We
already have an affiliated title company. Currently, we include the entire fee
paid to the title company in the points and fees calculation. Having to include
both the fees of the title company and the insurance company in the points and
fees calculation will be especially problematic for lower balance loans. However,
I am hearing that we may only need to include in the points and fees
calculation that portion of the fee actually retained by the affiliate. Can you
please shed some light on this issue?
ANSWER
In accordance with the Official Commentary to the Truth-in-Lending Act,
only that portion of the fee that the affiliated ultimately retains that is included in the QM
Points and Fees test.
For example, let’s assume that your title company, who is an agent for
the title insurer, retains 85% of the title premium, with the 15% balance going
to the third party title insurer. As the title company only retains 85% of the
fee, only that portion is included in the points and fees test. The same would
hold true for your affiliated insurance company. The fact that the Closing
Disclosure shows that the entire fee is paid to the title company does not
alter the fact that the portion of the fee that is not ultimately retained by
the affiliate need not be included in the points and fees calculation.
The relevant section of the Official Commentary
is set forth below as well as an excerpt from the informal guidance given by
the Bureau during a CFPB/MBA Webinar held on October 17, 2013.
Official Commentary
Paragraph 32(b)(1)(i)(D) (emphasis added).
1. Charges not retained by the creditor, loan originator, or an
affiliate of either. In general, a creditor is not required to count in
points and fees any bona fide third-party charge not retained by the creditor,
loan originator, or an affiliate of either. For example, if bona fide
charges are imposed by a third-party settlement agent and are not retained by
the creditor, loan originator, or an affiliate of either, those charges are not
included in points and fees, even if those charges are included in the finance
charge under §1026.4(a)(2). The
term loan originator has the same meaning as in §1026.36(a)(1).
Unofficial Transcript of the
CFPB/MBA Webinar held on October 17, 2013:
LISA APPLEGATE: Okay, let’s stay on the topic of affiliates and move on
to fees paid to affiliates. The Bureau has received many requests for
confirmation that charges paid to its affiliates, are limited to the amount the
affiliate retains, even if the combined charge is originally paid to the
affiliate.
ANDY ARCULIN: Okay, so this is something that
has come up quite a bit, and it commonly, to give you just an illustration, and
I’m sorry, I don’t have it on the screen for you, but I think it will be easy
enough to follow. The most common illustration of this rule that I’ve heard is,
the creditor has an affiliated appraisal management company - an AMC. And a
charge is paid to the AMC, say its $500 to do an appraisal, but the AMC itself
doesn’t do the appraisal, the AMC itself hires an appraisal company that
actually is an independent, unaffiliated third party to do the appraisal and
pays that non-affiliate $400, but keeps $100 for itself. The question that has
come up is, the $500 charge that’s paid to the affiliate, meaning the money is
handed to the affiliate and the affiliate essentially outsources the work, is
that required to be included in points and fees or is only the piece that the
affiliate keeps for itself required to be in points and fees? This is, our
reading of this rule is that, generally “paid to,” means a person that is the
ultimate recipient of and retains the charge. You know, I would also
just note that it doesn’t matter, under these rules, who pays it, as long as
it’s not the creditor. If you know, there’s no requirement that the consumer
has to pay this charge, it simply just says “paid to.” But that’s sort of an
aside. What matters is that, you know, for purposes of our interpretation of this
rule, the portion that’s retained by the affiliate is what would need to be
included in points and fees. So under the example I gave, you have, if
you have $500 that’s sent to an affiliate, but $400 is actually, you know,
assuming that the charge is reasonable and there’s no compensation paid in
connection with it, just to make sure we’re covered there, the $400 is to a
third party that’s not affiliated and the charge wouldn’t be included anywhere
else, in our view, only the $100 retained by the affiliate would be included in
points and fees.
Joyce Wilkins Pollison
Executive Director/Lenders Compliance Group
Director/Legal & Regulatory Compliance
