One of our offices was approached by a permanent mortgage bank to make some construction loans on loans that they had agreed to do the permanent financings. We would make the construction loan only but would collect the origination fee for the permanent lender at the time of our construction loan. I think this is accepted in the industry but wonder if we just show the fee in the Itemization of Amt. Financed as "a fee paid to a 3rd party, another bank. And it doesn't appear this would be a prepaid since it is not a fee we impose or keep but rather collect and then just send to the other bank. There is no Hud or Good Faith to disclose. Does this seem right??? Thanks.

First let me state that my experience in these types of arrangements have involved situations where the origination fee is paid to the construction loan bank and is obviously a finance charge. IMHO, if you collected the origination fee for the permanent mortgage holder, it should be included in the finance charges and itemized as the origination fee paid to "the Whatever Mortgage Co."

I agree with Allan in that the fee should be disclosed as a finance charge. I also have a problem with these arrangements, where the const. lender is collecting fees for the perm. lender (the perm. lender hasn't originated anything yet other than a commitment). What if the borrower finds a better deal for his/her perm. loan and decides to go to a different lender, is the origination fee refundable?

We deal with that situation in some of our offices, and after discussing it with the FED, we came to the conclusion that it is best to fund those fees (ours involve more than an orig fee) as the first draw on the construction loan payable to the Mortgage Company at the borrowers direction.

Technically, for the mortgage company to issue a commitment, they have earned their fee due to the mortgage process. It helps them keep away from lender jumping after the work has been done. Having been from both sides of the fence, I can see their point, however since our loan was not subject to RESPA, we did not want disclosure on the HUD 1.

The reason for that is, and the FED agreed, that if it were inadvertantly disclosed on the wrong line or in some way improperly, it could come back on us. Therefore, the decision to allow the fees to be paid from the first draw was decided as the way we would handle it.

I hope that made some tiny speck of sense...it's been a long week!