STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL

June 18, 1970

Walter E. Wintrode
Superintendent of Banks
Capitol Building
Pierre, South Dakota 57501

OFFICIAL OPINION NO. 70-24

Mortgage Loan Discount Points

Dear Mr. Wintrode:

Your question for which you are seeking an opinion of this office is as follows, to-wit:

Are mortgage loan discount points collected on Federal Housing Administration loans exempt from the usury statutes of the state of South Dakota?

There is little or no question in the mind of this writer that discount points, when the same are a reservation of money from the amount lent at the time of making a loan, are interest. First National Bank v. Childs, 133 Mass. 248, 43 Am. Rep. 509. Also, there is no question that when such sum reserved is added to the interest charged and aggregates more than the rate lawfully allowed for the period of the loan, the loan is usurious. Battavina v, Pignotti., 177 Neb. 217, 128 NW 2d 817.

Your question, however, is qualified to include only loans made by lenders and insured by the Federal Housing Administration. The South Dakota statutes provide that loans made by a bank, savings banks, cooperative banks, trust companies, life insurance companies, property insurance companies, health and accident insurance companies, and other insurance companies, building and loan associations, savings and loan associations, homestead associations, surety companies, and assessment companies . . . "as are eligible for insurance by the Federal Housing Administration and do obtain such insurance;" 51-18-25 SDCL, are not regulated under the laws of this state . . . "prescribing or limiting interest rates upon loans , . ." 51-18-28 SDCL.

Therefore, your question is answered in the affirmative, loans insured by the Federal Housing Administration are exempt from the usury statutes of the state of South Dakota,

Respectfully submitted,

Gordon Mydland
Attorney General