A question came up today regarding how to determine if a covered loan was initially payable to our financial institution.
In the case of loans sold to the secondary market, would these be coded as a 1? (Code 1–Initially Payable to Your Institution)
At the time of origination, these loans are technically ours until the Investor actually purchases it, but the intention from the get-go is to sell it to an Investor.
We are hoping to hard code into our LOS that all originations would be a code 1.
Any input would be greatly appreciated.

Hopefully Kathleen or David will weigh in, because I'm confused on this topic as well. I wonder if this data point is to determine if the loan was table funded or if the institution uses their own funds to originate the loan???

If the note is payable to your institution on its face, then it would have been made "initially payable" to you.

Paragraph 4(a)(33)(ii)
1. General. Section 1003.4(a)(33)(ii)
requires financial institutions to report
whether the obligation arising from a covered
loan was or, in the case of an application,
would have been initially payable to the
institution. An obligation is initially payable
to the institution if the obligation is initially
payable either on the face of the note or
contract to the financial institution that is
reporting the covered loan or application. For
example, if a financial institution reported an
origination of a covered loan that it approved
prior to closing, that closed in the name of
a third-party, such as a correspondent lender,
and that the financial institution purchased
after closing, the covered loan was not
initially payable to the financial institution.

This is the key to what Randy posted: An obligation is initially payable to the institution if the obligation is initially payable either on the face of the note or contract to the financial institution that is reporting the covered loan or application.

Most secondary market loans I see are closed in your name (the customer's bank) and then sold to the investor. However, the contractual with the investor always has "we don't have to buy this" wording and the note is to the first bank. Thus, i think we're going to typically see code "1".

If that fits your situation, I think you can hard code this that way.

Thank you so much!