NOTE:  DocMagic, Inc.'s Compliance Department has removed the below audit from the DocMagic software based on a conversation with Craig Christensen, Senior Examiner at the Iowa Division of Banking, regarding the interpretation of the phrase "A borrower may be charged by a lender ... a loan origination or processing fee, a broker fee, or both,..."  Mr. Christensen clarified that although awkwardly written, the Division of Banking interprets the foregoing provision as permitting all three types of fees - an origination, processing fee and broker fee - as long as the sum total of these fees does not exceed two percent of the loan principal amount, or one percent of the unpaid balance of the loan if that loan is being assumed or refinanced.

DocMagic, Inc.'s Compliance Department has added to the DocMagic software an audit for all Iowa loans in which a warning appears if both a loan origination fee and processing fee are entered in the DocMagic worksheet and charged to the borrower.  In addition, in order for the warning to display, the property must be owner-occupied and single family housing, a condominium, a planned unit development, a cooperative, or manufactured housing of any type.  The warning that displays is substantially similar to the following:

WARNING: ORIGINATION OR PROCESSING FEE, BUT NOT BOTH, CAN BE CHARGED

The above audit is based on an amendment to Iowa Code Annotated Section 535.8, which became effective July 1, 2008.  Section 80 of Iowa House File 2700, which amends Section 535.8, states in pertinent part:

Sec. 80.  Section 535.8, subsection 2, paragraphs a and b, Code 2007, are amended to read as follows:

a.  A lender may collect borrower may be charged by a lender, in connection with a loan made pursuant to a written agreement executed by the borrower on or after July 1, 1983, or in connection with a loan made pursuant to a written commitment by the lender mailed or delivered to the borrower on or after that date, a loan origination or processing fee, a broker fee, or both, which does together do not exceed two percent of an amount which is equal to the loan principal; except that to the extent of an assumption by a new borrower of the obligation to make payments under a prior loan, or to the extent that the loan principal is used to refinance a prior loan between the same borrower and the same lender, the lender may collect borrower may be charged by a lender a loan origination or processing fee, a broker fee, or both, which does together do not exceed an amount which is a reasonable estimate of the expenses of processing the loan assumption or refinancing but which does not exceed one percent of the unpaid balance of the loan that is assumed or refinanced...

Based on the above, a loan origination or processing fee, but not both, may be charged.  

Please note that the Compliance Department is in the process of exploring whether additional audits can be added in DocMagic that would warn the DocMagic user (1) that a loan origination or processing fee, a broker fee, or both, cannot exceed two percent (2%) of the loan principal on owner-occupied property that is single family, a condominium, a planned unit development, a cooperative, or manufactured housing of any type, and (2) if the borrower is refinancing with the same lender, that an origination or processing fee, a broker fee, or both, cannot exceed 1% of loan principal.  The Compliance Department will keep you apprised of any new developments in this regard through a future Compliance Wizard issue.

If you have any questions concerning the contents of this article, please contact the Compliance Department.

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