There has been quite a bit of discussion lately regarding the treatment of seller-paid fees and charges for purposes of the Fannie Mae test. The controversy began when in late January 2009 a major investor announced that they had confirmed with Fannie Mae that seller-paid items should be included in the Fannie Mae 5% points and fees test. This struck many compliance professionals by surprise so we decided to ask Fannie Mae. Here is our question and Fannie Mae's response:
Q: Are you aware of any recent Fannie Mae Announcement that indicates that seller-paid fees must now be included in the Points and Fees test? |
A: I've checked with the business unit responsible for this policy. It's not new - we include in our point and fee test fees "charged" to the borrower, regardless of whether they are "paid" by the borrower or by the seller. Let me know if you have any additional questions. From 2007 FNMA Selling guide: VII, 104.11: Maximum Allowable Points and Fees (01/01/07) We will not purchase or securitize a mortgage if the total points and fees charged to the borrower are greater than five percent of the mortgage amount, except when this limitation will result in an unprofitable origination for the lender (for example, because of the small size of the mortgage). Points and fees include origination fees, underwriting fees, broker fees, finder's fees, and charges that the lender imposes as a condition of making the loan-whether they are paid to the lender or a third party. Points and fees that do not have to be counted against this limitation include bona fide discount points, as well as fees paid for actual services rendered in connection with the origination of the mortgage, such as attorneys' fees, notary's fees, and fees paid for property appraisals, credit reports, surveys, title examinations and extracts, flood and tax certifications, and home inspections; the cost of mortgage insurance or credit-risk price adjustments; the costs of title, hazard, and flood insurance policies; state and local transfer taxes or fees; escrow deposits for the future payment of taxes and insurance premiums; and other miscellaneous fees and charges that, in total, do not exceed one-quarter percent of the loan amount.
From Ann. 06-04: HOEPA Mortgages and Mortgages with Excessive Fees (04/14/06): Points and Fees Part VII, Section 104.11: Maximum Allowable Points and Fees. With regard to points and fees, Section 104.11 is hereby amended as follows: Fannie Mae will not purchase or securitize a mortgage if the total points and fees charged to the borrower exceed the greater of five percent of the mortgage amount or a maximum dollar amount of $1,000.
The current requirements in Section 104.11 detailing the costs that are included, or excluded, from the points and fees calculation remain unchanged, and are not affected by this amendment.
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As you can see, whether or not a point and fee is included in the Fannie Mae turns not so much on who pays the point or fee, but rather whether or not the point or fee is charged to the borrower. While it's hard to argue that that isn't what the Fannie Mae Selling Guide says, one could certainly make an argument that that really can't be what it means. Regardless, we have made the appropriate modifications in our Fannie Mae points and fees test to now treat borrower-paid and seller-paid items in exactly the same manner for purposes of the Fannie Mae points and fees test.
What is the practical impact of this change? Probably not all that much with respect to most fees and charges. For example, many fees and charges paid by the borrower (e.g., bona fide discount points, certain Regulation Z Section 226.4(c)(7), 226.4(d) and 226.4(e) charges, mortgage insurance premiums, etc.) are already excludable from the points and fees test; the fact that all or some of these fees may now be paid by the seller does not change that fact - they will remain excludable. So this change will have any impact on the Fannie Mae points and fees test generally only to the extent a fee paid by the borrower is not otherwise excludable. These would include fees and charges such as, for example, loan origination fees.
Please feel free to contact DocMagic's Compliance Department if you have any questions or comments regarding this article.
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