We currently broker secondary market real estate loans, but will start closing them in our own name soon mainly to avoid RESPA and the yield spread premium issue. I have been advised that all the documents should be in our name not the bank who will purchase the loan although the bank purchasing wants the documents in their name. The questions I have concern PMI and escrow accts. We currently don't deal with either issue on our inhouse loans. If we close the loan and fund it will we need to disclose both of these items? We intend to sell the loans the day after closing. How does everyone else handle this? Do you put the loan on your computer for one day, collect 1 day interest report the interest collected to the customer? I'm confused about the operational side of this entire process. Help!

Is your bank going to fund the loans and then sell them to the secondary market?

Tina A Sweet-Williams
AVP/Compliance Officer
Gold Country Bank, NA
Marysville, Ca. 95901
mailto:tsweet@goldcountrynb.com

Yes, we will fund the loans, then sell them the following day.

You need to discuss several issues with legal counsel:

Escrow disclosures under RESPA and state laws

Servicing transfer notices

The length of time needed to establish sufficient indicia of ownership of the loan to satisfy RESPA (not defined in Reg. X - make sure that counsel is comfortable with one day).

Branch banking rules regarding disbursement of loan proceeds.

State laws, like the licensing law in Michigan that prohibits the transfer of a loan until at least 75% of the proceeds are disbursed.

Etc., etc., etc.

The timing rule under RESPA is based on the rule that one of the lenders -- the originating lender -- must be subject to RESPA. A lender cannot evade RESPA coverage by structuring table funding. It sounds as though you are setting up a clear procedure that makes your institution the lender for purposes of RESPA. You are the funding lender and therefor make the original disclosures (HUD-1, etc.) It makes no difference for purposes of RESPA whether you keep the loan for 1 month, 1 day, 1 hour, or 1 minute. State law may have something different to say.

As for disclosures, as the original lender, you are obligated on all lending disclosures (appraisal notice, flood determination, TIL, and the RESPA stuff.) Servicing transfer can actually be handled by giving the transfer "good-bye" notice at closing. That way the borrower is clear and you know that the borrower received it.

The escrow notice is an interesting issue. The lender actually has 45 days to deliver the initial escrow notice. The lender also owes the borrower a close-out short-year escrow notice when the servicing is transferred. However, it sounds as though you are not actually setting up the escrow notice -- the purchaser is. If that is the case, you only need disclose the information that is pertinent to closing -- the funds you are collecting to put into the escrow account that the purchaser will set up.

We have a secondary market operation here and for some reason it's under my compliance hat (go figure). We fund ourselves and sell out the door the next day but I can honestly say - it never happens "the next day". When you start operating in a correspondent type relationship the timing for getting reimbursements increases. Usually the lender won't fund until receipt of the entire package, a thorough review of the package, corporate assignment has been filed and possibly recorded, etc. Thus, we disclose everything and follow all regs in total. I had one loan take almost three months to get funds back to me - they lost the file!

I need help with something....our new 2ndary Mortgage Department tells me that they do not know who the purchaser of the mortgage will be until after closing.....all of the possible purchasers require a "tax service" that costs our customer $75.....since we do not know at closing who the ultimate receiver of the fee for the "tax service" company will be, what should be placed on the HUD Settlment Statement next to "tax service"?????

Most tax service contracts can be assigned - check with your provider. When we close we disclose the full amount of our service provider as we will establish the contract until we receive funds for pay-off. As stated earlier, there are times when it takes 3-4 months to get our money and it's frustrating. So, we always make sure our track are covered especially at tax paying time.

Thank you for responding, but I need to know what I should have the settlement agent place on the HUD Settlement Statement....our (the Bank's) name or what?...since we don't know the name of the Purchaser's company that performs the tax service......I spoke with our Bank's regulator today and was told that "this is a HUD question...contact them"...YIKES!!!!Can anyone out there help me so that I do not have to contact "DUH"........