[timob1973]

While reviewing secondary market loan files, I noticed that several of our secondary market lenders (aka investors) do not list a flood determination fee on their loan estimate or closing disclosure. When we question the lenders, they note that the flood determination fee is included in their “origination” charge.

I was under the impression that for services that a borrower cannot shop for that are paid to a 3rd party, those services must be listed on the loan estimate under section B on page 2 of the loan estimate – 1026.37(f). Have I missed something? Is it permissible to “hide” a flood determination fee within an origination charge? Or do we need to go back to the secondary market lender and require them to break out the flood determination fee?

Any help would be appreciated!

[rcooper]

We agree with you timob1973. If a third party is doing the flood determination then it should be disclosed in Section B “Services You Cannot Shop For”, assuming they can’t shop. (see commentary below).
If the flood determination is being done by the lender and the fee is being paid to the lender and lender retains the fee (which doesn’t happen much anymore) then it could be include as part of the origination charge.

Comment 1026.37(f)(2) Services you cannot shop for.
1. Services disclosed. Items included under the subheading “Services You Cannot Shop For” pursuant to § 1026.37(f)(2) are for those services that the creditor requires in connection with the transaction that would be provided by persons other than the creditor or mortgage broker and for which the creditor does not permit the consumer to shop in accordance with § 1026.19(e)(1)(vi).

2. Examples of charges. Examples of the services and amounts to be disclosed pursuant to § 1026.37(f)(2) might include an appraisal fee, appraisal management company fee, credit report fee, flood determination fee, government funding fee, homeowner’s association certification fee, lender’s attorney fee, tax status research fee, third-party subordination fee, title – closing protection letter fee, title – lender’s title insurance policy, and an upfront mortgage insurance fee, provided that the fee is charged at consummation and is not a prepayment of future premiums over a specific future time period or a payment into an escrow account.

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