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ADVISORY RULING #36
NOVEMBER 16, 1976
November 16, 1976
Re: Interpretation 226.406, FRB #641 and FRB #746
The question is whether or not "points" paid by a seller must be taken into consideration when completing a mortgage disclosure statement.
If the points are paid directly, or indirectly, by the buyer, then they must be taken into consideration. If the points are paid directly by the seller to the Bank, and the sales price of the property is not effected in anyway, then they need not be disclosed. Extreme caution should be exercised, however, should this be the case. The determining factor is whether or not it costs the borrower anything extra because "seller points" are involved.
The Federal Reserve Board's position is that, if you always add "seller's" points to the finance charge, and subtract them from the amount financed, you'll never get an argument from them. They are saying, to get a true picture one would need to study each individual transaction to see whether or not "points" were somehow "slipped" to the borrower.
I would have to agree. If the borrower ends up paying such fees, by any means conceivable (and I'm sure any number of ways can be devised) then they must be taken into consideration when disclosing. If they are not disclosed, and a path can somehow be followed from the "sellers points" to the buyers wallet, then Truth-in-Lending would have been violated and the creditor would be subject to the civil liability section. This will be something the Bureau Examiner will be looking for specifically.
One final point, the consumer has a right to allege a Truth-in-Lending violation, no matter what position the Bureau of Consumer Protection might take. Written documents might not reveal that "seller points" were passed on to the consumer, yet he might have been informed orally by the seller or his agent that the agreed price will be higher if the consumer seeks a certain type mortgage. These facts might come out in court. Therefore, if the creditor decides not to disclose "sellers points", he should take great care to insure that such points are not borne, in any fashion, by the borrower.
Randall J. Clark
Research Associate II