The Customer Service Department has received telephone calls from customers over the past month about a recently implemented audit for Wisconsin loans. Many customers processing Wisconsin loans have called to inquire about the following warning:

FINANCE CHARGES TO LENDER > 2% MAY BE SUBJECT TO REFUND UPON PREPAYMENT; REDUCE BELOW 2%

This warning advises the user that the borrower may be entitled to a refund if the borrower prepays the loan in full, because finance charges exceed 2% of the principal amount of the loan. If the DocMagic user wants to minimize the possibility of having to refund the borrower in the event of prepayment, then finance charges should be reduced below 2% of the loan amount.

In Wisconsin, a borrower is entitled to a refund of unearned interest upon the borrower's prepayment in full by cash, renewal or refinancing of a loan secured by a first lien real estate mortgage on a one-to-four family dwelling which the borrower uses as his or her principal residence. Under Wisconsin Statutes Annotated Section 138.052(2)(b), "unearned interest" is the portion of any prepaid charge calculated according to a specified formula under the statute. To view the complete text of Section 138.052, click here.

In calculating unearned interest, the following charges are to be excluded:

1. identifiable and separately itemized charges for services incident to the loan if they are bona fide and paid to third parties;
2. fees, discounts or other sums imposed by governmentally sponsored secondary mortgage market purchasers or private secondary mortgage market purchasers not related to the original lender;
3. loan administration fees charged by the lender, including fees paid to third parties for loan administration services, not exceeding 2% of the principal amount of the loan;
4. prepayment charges authorized under the statute;
5. loan commitment fees; and
6. amounts paid to the lender by any person other than the borrower.

The warning that Document Systems, Inc. ("DSI") has implemented pertains to loan administration fees.

Section 138.052 defines "loan administration" as a lender's processing of a loan and includes review, underwriting and evaluation of the loan application, document processing and preparation and administration of the loan closing, but does not include appraisals, inspections, surveys, credit reports or other activities incidental to loan origination and normally taking place outside the office of the lender or performed by third persons.

Based on Document Systems, Inc.'s interpretation of Section 138.052, DocMagic sums all financed charges, including origination fees, paid to the lender at closing. In cases where the total amount of finance charges paid to the lender exceeds 2% of the principal loan amount, the above warning will pop up. While the DocMagic user could elect to continue processing the loan documents without reducing the lender's fees, be aware that the borrower may later be subject to a refund of unearned interest upon the borrower's prepayment in full of his or her residential mortgage loan.

For more information, contact our Customer Service Department at (800) 649-1362.

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