We would like to know which title fees may be excluded when conducting a HOEPA points and fees test. We understand that fees not paid directly to the bank or its affiliate are excluded, as well as certain title fees for title examinations and title insurance. However, can we also exclude other title company fees for closings, couriers, date down endorsements, closing protection letters, the Illinois Anti-Predatory Lending Database, etc.?

Yes, we believe your bank is permitted to exclude the title company’s fees from the HOEPA points and fees calculation — provided that the fees are reasonable and neither your institution, nor an affiliate, receives any direct or indirect compensation in connection with the fees.

Regulation Z permits your bank to exclude title-related fees from the points and fees calculation, including “[f]ees for title examination, abstract of title, title insurance, property survey, and similar purposes” if the charges are reasonable, not paid to the creditor or its affiliate, and the creditor is not compensated in connection with the fees. Similarly, your bank may exclude other, non-title-related fees (such as the closing fee) if they are “bona fide third-party charge[s] not retained by the creditor, loan originator, or an affiliate of either.”

Consequently, we believe that both the title and non-title fees charged by a third-party title company may be excluded from the points and fees calculation, even if some of the fees are considered finance charges under Regulation Z — provided that they meet the conditions discussed above.

For resources related to our guidance, please see:

Regulation Z, 12 CFR 1026.32(b)(1)(iii) (“In connection with a closed-end credit transaction, points and fees means the following fees or charges that are known at or before consummation: . . . (iii) All items listed in § 1026.4(c)(7) (other than amounts held for future payment of taxes), unless:

(A) The charge is reasonable;

(B) The creditor receives no direct or indirect compensation in connection with the charge; and

(C) The charge is not paid to an affiliate of the creditor; . . .”)

Regulation Z, 12 CFR 1026.4(c)(7) (“The following charges are not finance charges: . . . The following fees in a transaction secured by real property or in a residential mortgage transaction, if the fees are bona fide and reasonable in amount: (i) Fees for title examination, abstract of title, title insurance, property survey, and similar purposes. . . .”)

Regulation Z, 12 CFR 1026.32(b)(1)(i)(D) (“In connection with a closed-end credit transaction, points and fees means the following fees or charges that are known at or before consummation: . . . All items included in the finance charge under § 1026.4(a) and (b), except that the following items are excluded: . . . Any bona fide third-party charge not retained by the creditor, loan originator, or an affiliate of either, unless the charge is required to be included in points and fees under paragraph (b)(1)(i)(C), (iii), or (iv) of this section; . . .”)

Regulation Z, Official Interpretations, Paragraph 32(b)(1)(i)(D), Comment 1 (“In general, a creditor is not required to count in points and fees any bona fide third-party charge not retained by the creditor, loan originator, or an affiliate of either. For example, if bona fide charges are imposed by a third-party settlement agent and are not retained by the creditor, loan originator, or an affiliate of either, those charges are not included in points and fees, even if those charges are included in the finance charge under § 1026.4(a)(2). . . .”)
Regulation Z, Official Interpretations, Paragraph 32(b)(1)(i)(D), Comment 3 (“Real estate-related fees. The exclusion for bona fide third-party charges not retained by the creditor, loan originator, or an affiliate of either is limited by § 1026.32(b)(1)(iii) in the general definition of points and fees. Section 1026.32(b)(1)(iii) requires inclusion in points and fees of items listed in § 1026.4(c)(7) unless the charge is reasonable, the creditor receives no direct or indirect compensation in connection with the charge, and the charge is not paid to an affiliate of the creditor. If a charge is required to be included in points and fees under § 1026.32(b)(1)(iii), it may not be excluded under § 1026.32(b)(1)(i)(D), even if the criteria for exclusion in § 1026.32(b)(1)(i)(D) are satisfied.”)