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#1832691 - 07/12/13 08:24 PM Recalculating APR on loans with PMI
Red Raiders Offline
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Red Raiders
Joined: May 2013
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Compliance Land
This may be a silly question but let me pose a scenario:

Loan closes where we collect two months PMI for the escrow account. The loan hits 78% LTV after 97 payments.

When recalculating the APR under this scenario would you use 97 payments of P&I and PMI for the first payment stream or 95 since you have two months in the escrow account?

I initially thought 97 but when I recalculated a loan having this criteria I was off by exactly two months PMI for the finance charge. If I use 95 months, it is to the penny.

Thoughts??
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#1832696 - 07/12/13 08:34 PM Re: Recalculating APR on loans with PMI Red Raiders
Truffle Royale Online

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You're only going to collect 95 payments with PMI.
For the 96th and 97th payment, you'll use those two months you collected.

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#1832711 - 07/12/13 09:00 PM Re: Recalculating APR on loans with PMI Red Raiders
Red Raiders Offline
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Red Raiders
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Posts: 1,069
Compliance Land
That makes total sense now that it is pointed out. smile Thanks for the response!
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#1832746 - 07/13/13 04:00 AM Re: Recalculating APR on loans with PMI Red Raiders
Richard Insley Offline
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Richard Insley
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Toano, VA
Section 1026.17(c)(1) tells you to disclose what the legal obligation permits. In a loan with PMI, you may very well collect a cushion of 2 months up-front, but your contract and the Homeowners' Protection Act won't let you retain more than a total of 97 months. That means 95 months of renewal premiums.
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#1832903 - 07/15/13 04:18 PM Re: Recalculating APR on loans with PMI Red Raiders
Dan Persfull Online
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
It also depends if you disclosed the 2 reserve payments as refundable or non refundable. If you disclosed refundable you collect 97 payments and refund the 2 reserve payments upon termination. If non-refundable you collect 95 payments and use the 2 reserve payments to make the final 2 payments.

See the Commentary to 1026.18(g)(5).
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The opinions expressed are mine and they are not to be taken as legal advice.

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