CALCULATION OF PREPAID FINANCE CHARGES AND
HOEPA POINTS AND FEES UNDER TILA
See Reg Z 226.4 & Commentary t & Reg Z § 226.32 & Commentary
FINANCE CHARGE UNDERSTATED?: FIRST STEP: Subtract Amount Financed
on TILA disclosure statement from the Loan Principal (Loan Amount on Note). This provides
the Lender’s calculation of the pre-paid finance charges. Then, analyze the fees listed on the
Settlement Statement as follows in accordance with Reg Z 226.4 to find additional fees that are
arguably finance charges. When defending foreclosure, you need to establish an understatement
of the finance charge by more than $35.00. See, 15U.S.C. 1635(i)
Fees That Are Almost Always Finance Charges:
1.
Broker fees and commissions.
2.
Loan origination fees.
3.
Loan discount fees.
4.
Lender underwriting fees
5.
Lender inspection fees.
6.
Flood certification fees.
7.
Tax service fees.
8.
Processing fees to lender or broker.
9.
Underwriting fees to lender.
10.
Commitment fee
11.
Prepaid or per diem interest.
12.
Settlement or closing fees.
13.
Private mortgage insurance.
14.
Any fee that could fairly be called points, loan fees, finders fees.
15.
Fees or taxes for perfecting security interests paid to public officials to the extent
they exceed the fees prescribed by law and actually paid. Reg. Z 226.4 (e).
16.
Courier fees.
17.
Assignment fees.
18.
Taxes on title insurance. (Arguable, no authority in Ky. As per Commentary
Commentary at § 226.4(a)(5) depends on whether Ky. law allows these taxes to
be passed on to the consumer; if not, they are finance charges. See KRS
§136.392, which mandates that this surcharge will be collected by the insurer
from its policy holders. The policy holder of a title insurance policy is the
creditor, not the consumer and there is nothing in KRS § 136.392 that allows the
creditor to pass the fee on to the consumer. These taxes are generally small (way
less than $35.00 and will only become significant when combined with other misallocated fees or if sufficient to take above HOEPA threshold. )
19.
Warehouse fee
20.
Any fee or charge labeled “prepaid finance charge”.
The Following Fees Generally Are Not Finance Charges in Transactions Secured by
Real Property unless the Fees Are Not Bona Fide or Reasonable in Amount. Debtor has burden
to prove a particular fee is not bona fide and reasonable.
1.
Title exam or title search fees.
2.
Notary fees. (Watch for inflated)
3.
Credit report fees.
But, 808 KAR 12:050 states that services that shall not be marked up shall
include: 1. Appraisal fees; 2. Surveyor fees; and 3. Credit reporting fees.
So if these fees are marked up, may not be bona fide or reasonable.
4.
Appraiser’s fees: arguable if appraisal itself is not bona fide in accordance with
industry standards, then the fee could be a finance charge, since not actually for an
“appraisal” but merely for document masquerading as appraisal to justify loan. (No
authority either way on this issue.)
5.
Document Preparation fees. (Watch for entities charging these fees who don’t
actually prepare documents).
HOEPA POINTS AND FEES: FIRST STEP: Calculate 8% of Amount Financed on TILA
disclosure to determine threshold that must be exceeded to make HOEPA apply. Then calculate the
HOEPA Points and Fees as per Reg Z, Sec 226.32, considering that the following fees are, or in the
case of certain § 226.4(c)(7) third party fees and YSP’s, may be points and fees. If you find a fee,
other than a YSP, that the creditor has not included in HOEPA points and fees that should have been
included in points and fees, subtract that fee from the Amount Financed and recalculate the 8%
threshold. Then, determine whether the points and fees exceed this new threshold. Points and fees
include the following:
1.
All of the prepaid finance charges above, except pre-paid or per diem interest, are
points and fees.
2.
All brokers commissions are points and fees, but they will have already been
included in the calculation of the points and fees at #1 above, so don’t count them
twice.
2.
All § 226.4(c)(7) third party fees, unless the charge is reasonable, the creditor
receives no direct or indirect compensation, and the charge is not paid to an affiliate
of the creditor. Reg Z, Sec 226.32(b).
The legislative history specifies that “it is the creditor’s burden to establish
that any such charge meets these three criteria for exclusion.” See H.R. Conf.
Rep. No. 652, 103d Cong. 2d Sess. 147, 165 (1994); 1994 U.S.C.C.A.N.
1987 (accompanying H.R. 3474) at 159. So creditor must plead and prove
that any particular § 226.4(c)(7) third party satisfies these criteria.
3.
Yield spread premiums. YSP’s are broker’s commissions, but most authority says
that YSP’s are not HOEPA points and fees because not paid by the consumer at or
before foreclosing. Even so, can argue, based on facts of particular case, that the
YSP is paid by consumer through lender for delivery to the broker at or before
closing via kickback from profits assured by prepayment penalty and in
consideration and expectation of higher interest rate1 & that loan was structured this
way to impermissibly superficially avoid HOEPA threshold and consumer
protections, so should be points and fee under Commentary to Reg Z at 226.32.
Note: YSP’s can legitimately be used to free up more money for consumer at
closing2, but when consumer has not requested the additional funds and if the
broker’s commission represented by the YSP would cause the points and fees to
exceed the 8% threshold, tip off that lender may be using YSP without consumer’s
knowledge to thwart consumer protections of HOEPA & KY High Cost Home Loan
Act.
1
“Mortgage broker fees. In determining ‘points and fees’ for purposes of this section,
compensation paid by a consumer to a mortgage broker (directly or through the creditor for delivery to
the broker) is included in the calculation whether or not the amount is disclosed as a finance charge.
Mortgage broker fees that are not paid by the consumer are not included.” Commentary to Reg Z at
226.32
2
Ideally, there is a bargain in which consumer asks for more money, broker says I can get more cash for
you by having lender pay part of my commissions and fees, but they lender will have to charge you higher interest
rate for these “reverse points”. Here’s what it will cost you overall. This never happens with our clients.
Other Violations Resulting in Potential Extended Rescission Rights.
1.
Failure to furnish One TILA Disclosure Statement and two Notices of Right to
Cancel to each consumer whose pre-existing interest in residential “dwelling”
becomes encumbered by security interest arising from transaction.
2.
Failure to fully complete Notice of Right to Cancel
3
At closing, furnishing conflicting TILA disclosure statements and/or Notices of
Right to Cancel. See e.g. Ameriquest’s Seven Day Notice .
4.
In ARM, failure to include an accurate payment schedule, including the number of
levels of payment change required by the Commentary at § 226.17. When there is
a teaser rate, number of payment changes to be disclosed includes first change and
must include additional changes if cap prevents the fully indexed rate from going
into effect. See Commentary 226.17 (c)(1)(10).