At DocMagic, we are constantly adding new features and enhancements in an effort to make our software products better. Today we are pleased to announce the addition of a "Bona Fide" discount point flag across our software product line. Read on to see what this means for you and your high-cost calculations.

As most of you know already, many state-specific high-cost tests permit a certain number of discount points to be excluded from points and fees provided that the discount points are "bona fide" (some states may use slightly different terminology (e.g., South Carolina), but for purposes of this discussion, we will refer to excludable discount points as "bona fide"). States that permit an exclusion for bona fide discount points are: Arkansas, Georgia, Indiana, Massachusetts, New Jersey, New Mexico, New York, North Carolina and South Carolina. What constitutes a "bona fide" (or "conventional conforming" discount point) is usually defined in the high-cost statute or regulation. Unfortunately, while many of the definitions are similar, they are not alike. Furthermore, the determination of whether or not a discount point is bona fide will often turn on data elements that our DocMagic software products do not capture.

This can be best illustrated by an example. All of the above-listed states (with the exception of New Mexico) include in their determination of bona fide discount points some reference to the undiscounted rate from which the discounted rate is determined. Thus, for example, in Arkansas, up to two (2) bona fide loan discount points may be excluded, but only if the interest rate from which the loan's interest rate will be discounted does not exceed by more than 1% the required net yield for a 90-day standard mandatory delivery commitment for a reasonably comparable loan from either Fannie Mae or Freddie Mac, whichever is greater. No DocMagic software product captures either the undiscounted rate or the Fannie Mae or Freddie Mac 90-day commitment required net yields as data elements.

Here's another example: in Indiana, an unlimited number of discount points may be excluded provided the cost of the discount points is recouped within the first four (4) years of scheduled loan payments. In order to perform that analysis, not only is knowledge of the undiscounted rate required, but a second payment schedule for the loan must also be prepared based on the undiscounted rate and the payments then compared in order to determine at what point in time the cost of the discount points is recouped.

Mainly because the DocMagic software products do not capture these data elements, in order to run our high-cost analyses in these states we have generally assumed that discount points paid to the lender are bona fide and excluded the maximum permissible. For the vast majority of our customers, this approach has worked just fine for many years now. However, a small, but growing, number of our customers have requested that we provide them with greater control over the treatment of discount points for their high-cost determinations. Hence, this has led to the creation of our bona fide discount point flag.

Here is how the flag works: within either the DocMagic for Windows or DocMagic Online products, click on the "Charges" tab. Loan discount points (code "D") are entered into the worksheet in the "Fees" area. At the very end of the line where loan discount points are entered, under the "Bona Fide?" heading there is a box. If you check the box, all of the discount points will be treated as bona fide and will be excluded for purposes of any applicable state-specific high-cost test up to the maximum amount permissible. If the box is left blank, the discount points will be treated as not bona fide and none of the discount points will be excluded for purposes of any applicable state-specific high-cost test.

A couple of points: (1) the "Bona Fide?" flag currently serves one purpose only: to exclude the maximum amount permissible for purposes of any applicable state-specific high-cost test. The flag will have no effect on any other functions or calculations within any of the DocMagic products, including but not limited to the Fannie Mae points and fees test where we will continue to assume that all discount points are bona fide; (2) this update obviously will require that we update both our assumptions found under the "Disclaimer" button on the state-specific high-cost screens within our DocMagic for Windows and DocMagic Online products, as well as some of our predatory lending information for those states listed above that permit an exclusion for bona fide discount points. Click here so you can access that information online. These updates will be made as soon as practicable.

Please feel free to contact the DocMagic Compliance Department, at (800) 649-1362, if you have any questions.

Bill Lambropoulos is the General Counsel and Director of Compliance and Legal Services at Document Systems, Inc.