Reg Z for Non-Borrower Pledging Collateral

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Question:

Reg Z - I have a borrower who is using his mother's primary residence as collateral for consumer purpose. The mother is not going to be on the note itself. She is just pledging the collateral. Would the Higher Price Mortgage requirements apply and is an Escrow required?

Answer:

Answer by Dan Persfull: Other than for the right of rescission the mother would not be a consumer for the purposes of Reg. Z therefore 226.35 would not apply.

Answer:

Answer by David Dickinson: Dan's right, but let me add: the mother must receive all disclosures (prepared for the borrowers) and a rescission notice. Otherwise, she may not fully understand what she has the right to rescind. I suggest the bank prepare a letter that may be signed by the mother that attests to the fact that the mother received a copy of the note, Truth in Lending disclosure, Right of Rescission notice, HUD-1 settlement statement and HOEPA disclosure if applicable.

First published on BankersOnline.com 6/13/11