I have been asked what compliance issues arise for a $250,000 commercial loan (interest-only payments) for which we want to maintain a $40,000 interst reserve. We would make the payments from the reserve.

I can't think of a compliance issue other than making sure we disclose the reserve provision.

Are there any issues I am missing? Might there be state or federal requirement for how we maintain the escrew?

Oh yes...about 55% of the proceeds will pay off a commercial land contract and 45% will pay off a HELOC.

I searched the threads but could not find one that addressed this issue.

If it's secured by improved real estate - you'll need to comply with Flood. If it's a dwelling of any kind, you probably should evaluate the HMDA applicability.

Thanks. Flood is a given. It will be secured by both commercial and residential real estate, but the purpose was stated as development of a site for 17 future residential dwellings. Thats what the majority of the funds are used for. (The land contract being paid off was originally to purchase that vacant land, with some additional money added for development costs. The pay off of the HELOC is just thrown in. Based on the fact that the majority of the funds are for land development (not purchase/improvement/refi of specifically identifiable dwellings) I eliminated HMDA. We do report HELOCs on HMDA if they have a HMDA-reportable purpose, but since the amount of this HELOC refi, as part of the commercial loan, is a minority of the use of the funds, I didn't think that applied either.

I think you've got it covered! The only other thing that comes to mind is FIRREA appraisal guidelines. Since there's some residential property involved - it might be a good idea to consider those rules.

I realize the reference to a "escrew" in your first post was a typo, but I wonder what Dr. Freud would say?

Thanks! I neded to laugh at myself today. I guess my reputation as the resident proof-reader has just crumbled.