My bank is considering buying a mortgage portfolio from an insuance company. These are mortgage loans the insurance company did for their employees. I am pretty sure that there is a note and mortgage and probably nothing else, no TIL or early disclosures. What responsibility would we have for these "material disclosures" that were not given in light of the fact that the original lender is not a financial institution? Or, does that fact not really change anything, placing the bank in the extended recission position?

You need to refer to Section 131 of the TILA. I believe an assignee could be held liable as they purchased the loan with "no" evidence of compliance.

For some reason the president of the bank seems to think that the fact that the original lender is an insurance company and subject to federal mortgage regulations, we are in the clear. My gut says that's wrong. Has anyone else purchased loans under there circumstances and how have you handled the material disclosures? Can we give them at the time of the sale?

Look at the definition of a Creditor in 226.2. If the Insurance Company meets the definition of a Creditor then all applicable Reg. Z disclosures were required. If they do not meet the definition of a Creditor then Reg. Z does not apply.

If you buy compliance violations, liability for those violations will become yours. At a previous employer, any loan found to have regulatory violations were exempted from the sale and any loan found within 90 days after the sale with violations had to be re-purchased.

IMO you cannot give the disclosures now.

You have some serious issues to contend with - possible extended periods of ROR, probably no Flood determinations and insurance where required.

If still in doubt, call your regulator.

Well, your president could be wrong. It would depend on whether the insurance company met the definition of a creditor under Reg Z. How many of these loans did the insurance company do a year. If they extended credit more than 5 times for transactions secured by a dwelling in the current or preceding calendar year, they would be a creditor and subject to Regulation Z (See 12 CFR 226.2(a)(17)). There are few exemptions from Regulation Z, no matter who you are, if you qualify as a creditor under the definition. You cannot correct this by making disclosures at the time of the loan sale.

You also have to ask yourself if they failed the basics of Reg Z, what other problems are there with these loans - RESPA disclosures, Flood, escrow accounting, high cost mortgages, rescission, etc.

Jezz Dan, great minds must think alike - huh

Thanks, that's the info I need. (Generally my gut reaction is correct!!)