11.5 Loan Fees

A. Lenders may charge loan origination and placement fees, both of which are mortgageable, and the combination of which cannot exceed 3.5% of the mortgage amount (or 5.5% for tax-exempt bond financing) for Section 223(f) refinancing transactions and new construction or substantial rehabilitation transactions. The maximum fees for Section 223(a)(7) loans is 2% for loans greater than $2 million, and up to $40,000 for loan amounts less than $2 million. In addition to loan origination and placement fees, Lenders may realize trade profit (also known as marketing gain) on the sale of Ginnie Mae or other mortgage backed securities.

B. Lenders are required to report loan fees earned that exceed five percent (5%) of the insured loan amount on each FHA-insured loan over $2,000,000 endorsed during the Lender’s fiscal year period covered in its audited financial statements. Loan fees include: (a) origination and placement fees as

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Chapter 11 Lender Underwriting, HUD Review and Closing 11.5 Loan Fees

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permitted by this Guide, plus (b) trade profit, trade premium or marketing gain earned on the sale of the Ginnie Mae security at a value above par, even if the security sale is delayed until after endorsement, minus (c) loan fees applied by the Lender to its legal expenses incurred in connection with loan closing. This reporting is confidential and is not subject to release under the Freedom of Information Act but will be examined by HUD in evaluating counterparty risk as part of the Lender monitoring responsibility.

C. The loan fees on a particular transaction that exceed 5% must be reported by both the originating Lender and closing Lender when the loan is assigned for closing and fees are split between the two entities. Trade profit fees used to pay prepayment penalties on behalf of a Borrower in a Section 223(a)(7) transaction are not net out of the loan fees in calculating whether or not the loan fees exceeded 5%.

D. Loan fees are earned as follows:

1. Construction loan fees are earned at initial closing, except to the extent that the loan documents defer a portion to a later date. Construction loan extension fees are not earned until the time such extensions are granted.

2. Permanent loan fees and permanent loan extension fees, to the extent a separate permanent loan is anticipated, are earned at final closing.

3. Construction/Permanent loan fees (for construction loans anticipated to convert to permanent loans) are earned at initial closing, except to the extent that the loan documents defer a portion to a later date.