A borrower takes out a $78,000 refinance loan. The lender charges the following fees: $2,500 origination fee, $400 document preparation fee, $300 underwriting fee, $750 broker fee (paid to an independent broker), $180 credit report fee (borrower must use the lender's designated vendor, and the lender retains a portion of the fee), and $1,200 in title/settlement fees from a third-party provider the borrower freely selected. Under HOEPA's points and fees test (Regulation Z, 12 CFR 1026.32), which fees are included in the calculation, and does this loan qualify as a high-cost mortgage?

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Lender fees ($2,500 + $400 + $300 + $750 = $3,950) plus the lender-retained credit report fee ($180) = $4,130; compared to the HOEPA 5% threshold ($3,900), this is a high-cost mortgage. The freely-chosen title fees ($1,200) are excluded. Under HOEPA's points and fees test (Regulation Z, 12 CFR 1026.32(b)(1)), included fees are: (1) all items payable to the creditor — origination ($2,500), doc prep ($400), underwriting ($300) = $3,200; (2) items payable to a mortgage broker — broker fee ($750); (3) required third-party charges where the creditor retains a portion or requires use of an affiliated/designated provider — the credit report fee ($180) is included because the lender designates the vendor and retains a portion; (4) freely chosen, bona fide third-party charges not retained by the creditor are EXCLUDED — the $1,200 title/settlement fee is excluded because the borrower freely selected the provider. Total includable: $3,200 + $750 + $180 = $4,130. HOEPA threshold for loans over the annually-adjusted small-loan limit: 5% × $78,000 = $3,900. Since $4,130 > $3,900, this IS a high-cost mortgage. Answer A incorrectly includes the freely-chosen title fees. Answer B dramatically understates included fees. Answer C applies the wrong small-loan threshold.

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