Board of Contract Appeals General Services Administration Washington, D.C. 20405 _______________ October 15, 1998 ________________ GSBCA 14668-RELO In the Matter of PHILIP R. MERKEL Philip R. Merkel, Tobyhanna, PA, Claimant. Captain Syed Sajid Hussain, Command Judge Advocate, Tobyhanna Army Depot, Tobyhanna, PA, appearing for Department of the Army. PARKER, Board Judge. In January 1998, Philip R. Merkel, a civilian employee of the Department of the Army, was transferred from Fort Hood, Texas, to the Tobyhanna Army Depot in Pennsylvania. When Mr. Merkel purchased a house at his new duty station, he incurred an expense of $520 for a "secondary market fee" which, according to the settlement sheet, was paid to the lender. Mr. Merkel also claimed, and received payment for, a "mortgage broker fee" equal to one percent of the loan amount. This fee was paid to the mortgage broker. The Army denied Mr. Merkel's claim for reimbursement of the secondary market fee on the basis that "this expense . . . was not customarily paid by buyers and not reasonable in amount in the locality where the property is located." In response, Mr. Merkel has submitted a letter from the mortgage broker. The letter states that the secondary market fee is a fee charged by lenders "to defray the cost of their overhead." This fee, according to the letter, is called different names by different lenders, including "underwriting, document preparation, administrative, commitment, discount, or tax service fee." The letter also states that the fee is "reasonable and customary in amount." Discussion Although the Federal Travel Regulation (FTR) does not specifically provide for reimbursement of a secondary market fee, it does permit reimbursement of a "loan origination fee." A loan origination fee is "a fee to compensate the lender for administrative type expenses incurred in originating and processing a loan." 41 CFR 302-6.2(d)(1)(ii) (1997). The description of the secondary market fee in the letter from the mortgage broker makes it clear that such a fee is properly characterized as a component of a loan origination fee. Generally, an employee may be reimbursed for a loan origination fee in an amount not in excess of one percent of the loan amount. Reimbursement may exceed one percent only if the employee shows by clear and convincing evidence that: (A) The higher rate does not include prepaid interest, points, or a mortgage discount; and (B) The higher rate is customarily charged in the locality where the residence is located. Id. The problem here is that Mr. Merkel has already been reimbursed for a "mortgage broker fee" equal to one percent of the loan amount. Although the FTR does not specifically authorize reimbursement of fees paid to a mortgage broker, the Comptroller General (the Board's predecessor in deciding relocation expense matters) has held that such fees, under certain circumstances, should be considered as part of the loan origination fee. In a case quite similar to this one, the Comptroller General discussed the issue as follows: The Federal Travel Regulation (FTR) prohibit[s] reimbursement for interest on loans, points, and mortgage discounts; and for any fee, cost, charge or expense determined to be part of the finance charge under the Truth in Lending Act. An exception to this is provided to allow limited reimbursement of a loan origination fee (and similar charges), defined as a fee paid by the borrower to compensate the lender for administrative-type expenses incurred in originating and processing a loan. We have held that while the regulations contemplate that ordinarily the loan origination fee will be charged by the lender, if it is clear that the administrative services for which such a fee is reimbursable are performed wholly or partially by another party such as a mortgage broker, the employee may be reimbursed for the other party's charge for such services. It also must be clear that the total fees are not greater than would have been charged without a broker being involved and the charge by the broker is not for services duplicated by the lending institution. In addition the general rules otherwise applicable to reimbursement for loan origination fees are applicable to such fees charged by the brokers or a combination of fees charged by a broker and lending institution. In this case, the mortgage broker apparently assisted the lender in processing the loan, and the fact that the mortgage broker performed these services, instead of or in combination with the lender, does not affect the nature of the services. However, as noted previously, Mr. Werner has been reimbursed a one percent loan origination fee charged by the lending institution. Under the FTR, one of the rules applicable to reimbursement for loan origination or similar fees is that the reimbursable amount may not exceed one percent of the loan amount unless the employee can show, by clear and convincing evidence, including an itemization of the administrative charges, that a higher rate does not include prepayment interest, points, or a mortgage discount and that the higher rate is customary in the locality where the residence is located. No such evidence has been furnished regarding the fees charges by the lending institution and mortgage broker in this case. Paul A. Werner, B-248538 (Sept. 24, 1992) (footnotes and citations omitted). Mr. Merkel faces a situation similar to the one faced by Mr. Werner. He has already been reimbursed for a loan origination fee (the mortgage broker fee) equal to one percent of the loan amount. The secondary market fee, claimed here, is also a component of a loan origination fee. Obviously, the two fees, when added together, exceed one percent of the loan amount. By regulation, an employee may not be reimbursed for a loan origination fee in excess of one percent of the loan amount unless he shows by clear and convincing evidence that the higher rate does not include prepaid interest, points, or a mortgage discount and that the higher rate is customarily charged in the locality where the residence is located. Mr. Merkel has submitted evidence that the $520 secondary market fee was reasonable and customary in amount. This is not enough, however. Mr. Merkel has submitted no evidence which shows that the total loan origination fee, which included both a mortgage broker fee and a secondary market fee, does not include prepaid interest, points, or a mortgage discount. Nor has he shown that a total loan origination fee in excess of one percent of the loan amount is customarily charged in the locality. Without clear and convincing evidence of these facts, reimbursement of the loan origination fee is limited to one percent of the loan amount. Since Mr. Merkel has already been reimbursed for a loan origination fee in that amount, his claim for an additional $520 secondary market fee must be denied. Decision For the reasons discussed above, the claim is denied. _________________________ ROBERT W. PARKER Board Judge