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We are working with a borrower who obtained a grant from a government housing program in addition to a loan from our bank. The housing program requires a grant mortgage, which we will include in our disclosures and record at the same time we record our mortgage. Should the recording fee for the grant mortgage be included as a finance charge? – IBA Compliance Connection

IBA Compliance Connection

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We are working with a borrower who obtained a grant from a government housing program in addition to a loan from our bank. The housing program requires a grant mortgage, which we will include in our disclosures and record at the same time we record our mortgage. Should the recording fee for the grant mortgage be included as a finance charge?

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No, we believe that this fee should be excluded from the finance charge calculation, provided that it is itemized and disclosed.

Regulation Z's finance charge calculation excludes fees “that actually are or will be paid to public officials” for recording a mortgage, among other similar fees. In our view, the fact that you are disclosing and paying the fee to the public official on behalf of the housing program does not prevent you from excluding the fee from your finance charge calculation.

For resources related to our guidance, please see:

  • Regulation Z, 12 CFR 1026.4(e)(1) (“If itemized and disclosed, the following charges may be excluded from the finance charge: (1) Taxes and fees prescribed by law that actually are or will be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest.”)