U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 May 2, 1996 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER TI-440 TO: ALL TITLE I LENDING INSTITUTIONS SUBJECT: ELIGIBLE FEES AND CHARGES FOR TITLE I PROPERTY IMPROVEMENT AND MANUFACTURED HOME LOANS In today's FEDERAL REGISTER, the Department has published an interim rule which makes extensive changes to the Title I property improvement and manufactured home loan regulations in 24 CFR Part 201. One of the changes made by the interim rule is to remove the detailed lists of eligible fees and charges that previously appeared in Sect 201.25, replacing them with general provisions stating that the Secretary will establish such lists. This letter identifies (a) the specific fees and charges that may be financed in a property improvement or manufactured home loan; (b) the fees and charges that may be collected from the borrower but may not be financed in the loan; and (c) the fees and charges that may be advanced by the dealer for the benefit of the borrower in connection with a dealer loan. The letter also provides an explanation of the changes that have been made from the lists of eligible fees and charges in the current regulations. Fees and Charges That May be Financed in a Property Improvement Loan In accordance with Sect 201.25(a) of the Title I regulations, the following fees and charges incurred in connection with a property improvement loan may be included in the loan amount, as long as their inclusion does not increase the total principal obligation beyond the loan amounts permitted in  201.10 of the regulations: 1. An origination fee, not to exceed five percent of the net proceeds disbursed to the borrower or other parties to the loan transaction, on any new property improvement loan. 2. Fees for architectural and engineering services. 3. Building permit costs. 4. Credit report costs. 5. Title examination costs. 6. Fees for determining whether the property is in a special flood hazard area. 2 7. Recording fees, recording taxes, filing fees, and documentary stamp taxes. 8. A fee for inspection of the property by the lender or its agent, not to exceed $75. 9. Such other items as may be specified by the Department. Fees and Charges That May be Financed in a Manufactured Home Loan In accordance with § 201.25(b) of the Title I regulations, the following fees and charges incurred in connection with a manufactured home loan may be included in the loan amount, as long as their inclusion does not increase the total principal obligation beyond the loan amounts permitted in § 201.10 of the regulations: 1. State and local sales taxes paid by the borrower. 2. Premiums paid by the borrower for hazard insurance and secured interest protection coverage for the first year of the loan term, including premiums for flood insurance where applicable. 3. Credit report costs. 4. Appraisal fees in connection with the purchase or refinancing of an existing manufactured home and/or lot. 5. Fees for determining whether the property is in a special flood hazard area. 6. Recording fees, recording taxes, filing fees, and documentary stamp taxes. 7. A fee for inspection of the property by the lender or its agent, not to exceed $75. 8. Such other items as may be specified by the Department. Fees and Charges That May Not be Financed In accordance with § 201.25(c) of the Title I regulations, the following fees and charges incurred by the lender in connection with a Title I loan may be collected from the borrower in the initial payment, but may not be included in the loan amount or otherwise financed or advanced by the dealer, the manufacturer, or any other party to the loan transaction: 1. An origination fee, not to exceed one percent of the loan amount, on any new manufactured home loan. 3 2. Discount points to be paid by the borrower to the lender, but only if the lender can demonstrate a clear relationship between the discount points being charged and a compensating decrease in the interest rate on the loan. 3. A fee for the services of a qualified closing agent to act on behalf of the lender in closing a direct loan transaction. 4. Title I loan insurance charges assessed by the lender. 5. Premiums for flood insurance that may be required in connection with a property improvement loan. 6. Premiums for credit life insurance or credit disability insurance. 7. Title insurance costs. 8. Payments into a tax and insurance escrow account for the current year. 9. Other fees necessary to establish the validity of a lien. 10. Appraisal fees that are not eligible for financing in the loan. 11. Survey costs. 12. A handling charge to refinance an existing Title I loan, not to exceed one percent of the new loan amount. 13. A fee for approving an assumptor and preparing the assumption agreement, not to exceed one percent of the unpaid principal balance on the loan. 14. A fee for recording a release of the lender's security in the property, if permitted under State law. 15. Such other items as may be specified by the Department. Fees and Charges That May be Advanced by the Dealer In the case of a dealer loan, the dealer may advance the funds for certain fees and charges incurred by the lender and be reimbursed by the lender from the loan proceeds. Alternatively, these fees and charges may be paid by the lender and their cost deducted from the loan proceeds paid to the dealer. In either ease, there must be full disclosure to the borrower that these fees and charges have been added to the price of the goods and/or services being provided by the dealer, and their inclusion must not increase the total principal obligation beyond the loan amounts permitted in § 201.10 of the regulations. 4 1. Credit report costs. 2. Title examination costs. 3. Appraisal fees in connection with the purchase or refinancing of an existing manufactured home and/or lot. 4. Fees for determining whether the property is in a special flood hazard area. 5. Recording fees, recording taxes, filing fees, and documentary stamp taxes. 6. A fee for inspection of the property by the lender or its agent, not to exceed $75. Changes From the Present Regulations The following changes in the eligible fees and charges were previously implemented by waiving various provisions in § 201.25 of the regulations, using the Secretary's general waiver authority. lenders were informed of these changes in three Title I letters: TI-428 , issued July 22, 1994; TI-429, issued October 6, 1994; and TI-431 , issued June 5, 1995. o Permitting the financing of an origination fee of up to five percent of the loan amount on any new property improvement loan. In this letter, the Department has clarified this provision to indicate that the maximum origination fee that may be financed is five percent of the net proceed disbursed to the borrower or other parties to the loan transaction, rather than five percent of the loan amount. o Permitting the financing of appraisal fees in connection with the purchase or refinancing of an existing manufactured home and/or lot. o Limiting the payment of discount points by the borrower to those cases where the lender can demonstrate a clear relationship between the discount points being charged and a compensating decrease in the interest rate on the loan. o Permitting the financing of recording fees, recording taxes, filing fees, and documentary stamp taxes on any Title I loan. o Providing that a fee for the services of a qualified closing agent (e.g., an attorney, escrow agent, settlement agent or title company) may be collected from the borrower, but may not be financed in the loan. o Providing that, in the case of a dealer loan, the dealer may advance the funds for certain fees and charges that are incurred by the lender and be reimbursed by the lender from the loan proceeds. 5 Alternatively, these fees and charges may be paid by the lender and their cost deducted from the loan proceeds paid to the dealer. The Department has added one item to the list of fees and charges that may be financed. Fees for determining whether the property is in a special flood hazard area (including "life-of-the-loan" determinations) will now be a financeable item in connection with all new property improvement and manufactured home loans. This change applies to any new loan for which a credit application is received by a lender or loan correspondent on or after June 3, 1996, and to any refinancing or option of an existing loan that is approved by a lender on or after that date. In addition, several items have been added to the list of fees and charges that may not be financed, because the Department regularly receives inquiries about whether these items are or are not financeable. These items may be collected from the borrower, but may not be financed in the loan: o Title I loan insurance charges assessed by the lender. o Premiums for flood insurance that may be required in connection with a property improvement loan. o Premiums for credit life insurance or credit disability insurance. o Fees for recording a release of the lender's security in the property, if permitted under State law. For Further Information If you have questions about this letter, please write to Robert J. Coyle, Chief, Home Improvement Insurance Division, 3214 L'Enfant Plaza East, Suite 3214, Washington, D.C. 20024, or call the Title I staff at 202-755- 7400. Sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing- Federal Housing Commissioner