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January 21, 2015
HMDA Soup to Nuts
David Dickinson

January 22, 2015
Navigating the Treacherous Waters of IRA Rollovers, Transfers and Beneficiary Payouts
Patrice Konarik

January 28, 2015
Mortgage Life Cycle
Part I
David Dickinson and Jerod Moyer

February 2, 2015
Answer HSA Questions with Confidence
Whitney Johnson

February 3, 2015
BSA/AML Compliance: Recent Developments and Common Errors
Ken Golliher

February 4, 2015
Mortgage Life Cycle
Part II
David Dickinson and Jerod Moyer

February 5, 2015
Annual Lending Compliance Recap
John Burnett and Andy Zavoina



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#57012 - 01/27/03 03:04 PM jewelry as loan collateral
rexinaudit Offline
Gold Star

Registered: 12/14/01
Posts: 292
Loc: New England
The bank has taken as loan collateral a 7.5 carat diamond ring and diamond bracelet. The client is wearing the collateral. The bank has been listed on the client's insurance as loan loss payee and the bank has filed a UCC along with the appraisal on the ring and bracelet with the Sec of State's office.

Any thoughts on the adequacy of this arrangement? I had expected that the bank would hold the collateral in its vault under joint custody. But this is an unusual transaction for this bank.
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#57013 - 01/27/03 03:08 PM Re: jewelry as loan collateral
Skittles Offline
10K Club

Registered: 09/10/02
Posts: 12110
Loc: KY
This is new to me. I would assume (and you know where that gets you) that the bank would want possession.
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#57014 - 01/27/03 03:16 PM Re: jewelry as loan collateral
complyguy Offline
Gold Star

Registered: 05/23/01
Posts: 494
Loc: PA
Not directly related to the lending aspect, but I thought that for rocks of that size, the owner wore a replica in public to avoid the possibility of loss or theft.

By the way, did you get any kind of certificate from a gemnologist? First, you want to be sure that you weren't looking at a replica when you saw the collateral. Second, the size may be huge, but if the clarity, cut, etc. are substandard, its value may be less than you'd think.

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#57015 - 01/27/03 03:22 PM Re: jewelry as loan collateral
rexinaudit Offline
Gold Star

Registered: 12/14/01
Posts: 292
Loc: New England
The bank obtained an appraisal, I presume from a knowledgable person.
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My opinions are not legal advice, not my employer's, and may change anytime.

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#57016 - 01/27/03 03:31 PM Re: jewelry as loan collateral
DawgFan Offline
Diamond Poster

Registered: 07/17/02
Posts: 1669
Loc: United States
I agree with Autumn, I would want to actually have the (real) rock in a safe place, under the bank's control. That type of collateral could be lost or stolen very easily.
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Opinions expressed are solely my own.

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#57017 - 01/27/03 03:36 PM Re: jewelry as loan collateral
WildTurkey Offline
Platinum Poster

Registered: 01/17/03
Posts: 921
Loc: Down South, USA
Unlike autos and real estate, there is no mechanism for registering your interest in jewellery, so although you have registered your interest in the insurance, you are still exposed to the risk of a fraud by the borrower who sells your collateral and defaults on the loan.

I would say that you should have the original gems in your vault.
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This is my opinion; it is not legal advice, nor the view of my employer, and it may change tomorrow.

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#57018 - 01/27/03 03:41 PM Re: jewelry as loan collateral
Don_Narup Offline

Power Poster

Registered: 07/13/01
Posts: 3708
Loc: Las Vegas Nevada

IMHO
This is an unsecured loan in disguise. How would you ever repossess the collateral? and What ever possessed a loan officer to take this as collateral?

I won't even go into all the ways the value of jewelry is effected, but unless the loan officer knows them, and has documentation from a reliable independent third party you can't even begin to determine a value. If the loan to value was based on the retail value established by an appraisal provided by the borrower you have another problem.

Borrowing on a luxury item like this would make me question financial ability. I hope there is a good primary and secondary source of repayment other than the sale of the diamond.

You are correct the collateral should be locked up in the banks vault. They want to wear it, pay off the loan.

IMO The borrower should qualify for this unsecured and if not pass

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#57019 - 01/27/03 03:50 PM Re: jewelry as loan collateral
Sponge Steve Offline
Gold Star

Registered: 06/18/02
Posts: 299
Loc: Midwest
Around here we call that psychological collateral. There's nothing there other than the borrower or the bank might think there's collateral.

There are some goods you can perfect against only by possession. Gold bars, rare coins, jewelry and such fall into that category.

If the loan goes into default, good luck finding the rock you think you had.

Reminds me of the story of crooked jewelers who clean rings for free but switch worthless stones for the good ones while the customer waits for the cleaning (or would that be a hosing?).
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Sponge Steve, CRCM, CBA Opinions expressed are mine and not my employer's

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#57020 - 01/27/03 03:51 PM Re: jewelry as loan collateral
Andy Z Online

10K Club

Registered: 10/27/00
Posts: 25323
Loc: On the Net
This was always a dangerous loan. I've never done one, but for security you'd want pictures, a credible valuation and the jewelry secured in your safe deposit box for safe keeping.

Otherwise, what do you do if the items are lost in luggage, went down the drain, etc.
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AndyZ CRCM
My opinions are not necessarily my employers.
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Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

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#57021 - 01/27/03 03:53 PM Re: jewelry as loan collateral
Sponge Steve Offline
Gold Star

Registered: 06/18/02
Posts: 299
Loc: Midwest
Even pawn shops take possession....
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Sponge Steve, CRCM, CBA Opinions expressed are mine and not my employer's

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#57022 - 01/27/03 03:59 PM Re: jewelry as loan collateral
Michelle M Offline
Gold Star

Registered: 10/24/02
Posts: 422
I agree with the concensus. Either label it an unsecured loan (and all that goes with that) or take possession of the jewlery until payoff.
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Michelle M Opinions do not necessarily reflect those of my employer nor are they legal advice

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#57023 - 01/27/03 04:16 PM Re: jewelry as loan collateral
SMQ, CRCM Offline

Power Poster

Registered: 04/09/01
Posts: 4549
Loc: Between the lines
This thread reminds me of something I once heard---wearable collateral and walking collateral have one thing in common-----they can (& often do) both walk away!!
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The lower the latitude, the higher my attitude.

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#57024 - 01/27/03 04:22 PM Re: jewelry as loan collateral
Michelle M Offline
Gold Star

Registered: 10/24/02
Posts: 422
Why a house makes better collateral than Jewlery...
......... You can't skip town with a house.
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Michelle M Opinions do not necessarily reflect those of my employer nor are they legal advice

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#57025 - 01/27/03 04:27 PM Re: jewelry as loan collateral
WildTurkey Offline
Platinum Poster

Registered: 01/17/03
Posts: 921
Loc: Down South, USA
In reply to:

Why a house makes better collateral than Jewlery...
......... You can't skip town with a house.




I can tell you don't live in NC! ... or TN, TX, KY, AR, FL, ....
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This is my opinion; it is not legal advice, nor the view of my employer, and it may change tomorrow.

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#57026 - 01/27/03 04:30 PM Re: jewelry as loan collateral
Michelle M Offline
Gold Star

Registered: 10/24/02
Posts: 422
??? huh???? You can skip town with a house? ... a whole house? ... or are me talking mobile home?
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Michelle M Opinions do not necessarily reflect those of my employer nor are they legal advice

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#57027 - 01/27/03 04:33 PM Re: jewelry as loan collateral
WildTurkey Offline
Platinum Poster

Registered: 01/17/03
Posts: 921
Loc: Down South, USA
In reply to:

.... or are we talking mobile home?



Same difference around here!
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This is my opinion; it is not legal advice, nor the view of my employer, and it may change tomorrow.

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#57028 - 01/27/03 04:41 PM Re: jewelry as loan collateral
1 Peter 5:7 Offline
Diamond Poster

Registered: 06/08/01
Posts: 1329
Loc: TX
Reminds me of this . . .
Q: In Arkansas, how are a divorce and a tornado alike?
A: Either way, somebody's losin' a trailer.
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Opinions are mine not my employer's, and should not be taken as legal advice.

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#57029 - 01/27/03 04:41 PM Re: jewelry as loan collateral
waldensouth Offline
Power Poster

Registered: 11/07/01
Posts: 7807
Loc: FINALLY ABOVE the gnat line
Without possession you have a violation of the FTC's Unfair and Deceptive Credit Practices Act. Section 227.13 indicates, "It is an unfair act or practice for a bank to enter into a consumer credit obligation that contains any of the following provisions, ....(d) a nonpossessory security interest in household goods other than a purchase money security interest." "Jewelery" is included in the definition of household goods in section 227.12(d). You may also find this in Reg. AA. If this is a nonpurchase money, consumer loan - you might have a little regulatory problem.
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#57030 - 01/27/03 04:55 PM Re: jewelry as loan collateral
Ted Dreyer Offline
Diamond Poster

Registered: 04/05/01
Posts: 2223
Actually, jewelry is excluded from the definition of "household goods" under 227.12, except for wedding rings.

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#57031 - 01/27/03 07:11 PM Re: jewelry as loan collateral
Sponge Steve Offline
Gold Star

Registered: 06/18/02
Posts: 299
Loc: Midwest
Good catch, Louvera.
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Sponge Steve, CRCM, CBA Opinions expressed are mine and not my employer's

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#57032 - 01/28/03 08:05 AM Re: jewelry as loan collateral
rexinaudit Offline
Gold Star

Registered: 12/14/01
Posts: 292
Loc: New England
Thank you for the insight on FTC rules. This loan, however, is a commercial loan.
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My opinions are not legal advice, not my employer's, and may change anytime.

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#57033 - 01/28/03 08:08 AM Re: jewelry as loan collateral
rexinaudit Offline
Gold Star

Registered: 12/14/01
Posts: 292
Loc: New England
Re: "There are some goods you can perfect against only by possession. Gold bars, rare coins, jewelry and such fall into that category."

The bank has filed a UCC on this jewelry. Are you saying that a provison of law makes this filing of no effect?
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My opinions are not legal advice, not my employer's, and may change anytime.

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#57034 - 01/28/03 08:50 AM Re: jewelry as loan collateral
redsfan Offline
Power Poster

Registered: 12/07/00
Posts: 3455
Loc: The Pennant Race
There is a strong possibility that if your borrower wanted to, they could sell your collateral without your knowledge and consent.

Jewelers are not very likely to check with the county courthouse or secretary of state (or whoever handles filings in your state) to determine whether or not the jewelry they are about to buy is subject to a security interest.

The average consumer on e-bay or who reads your newspaper is even less likely to do so.

Even if you managed to track the jewelry once it is sold, I find it unlikely that the courts would punish a buyer who purchased the jewelry in good faith just to protect you from your lack of foresight.

Collateral has value as collateral only if you can actually sell it to recover your loan. Bankers would take possession of business furniture, fixtures, and equipment if it wasnt for the fact that the business could not operate if they did.
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The opinions expressed here are personal and do not represent opinions of my employer.

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#57035 - 01/28/03 09:03 AM Re: jewelry as loan collateral
HRH Okie Banker Offline
Power Poster

Registered: 01/14/03
Posts: 2602
Loc: Oklahoma
We have taken diamonds as collateral a few times. We have the customer get a current appraisal from a jeweler, which can identify the stones and establish collateral value. Then we open a safety deposit box, bank and customer on signature card. The Bank's key can go in your collateral vault. In addition, all parties should be present when collateral is put in box. This way there cannot be any question of switching diamonds at the time the collateral is being released.
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#57036 - 01/28/03 09:40 AM Re: jewelry as loan collateral
waldensouth Offline
Power Poster

Registered: 11/07/01
Posts: 7807
Loc: FINALLY ABOVE the gnat line
Thank's Ted, I read that backwards. You can tell that this law was written in an age where wedding rings meant something and people would really be willing to repay the loan to get them back
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“Once you learn to read, you will be forever free.”

- Frederick Douglass




My Opinion Only.

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