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Reserve Fall Under Definition of Points&Fees?

If a bank sets aside monies as a reserve for future loan payments involving a loan secured with borrower's principal dwelling, does that reserve fall under the definition of points and fees; i.e. finance charges?

Answer Randy Carey: Commentary: 1026.18(r) Required Deposit

2. Pledged account mortgages. In these transactions, a consumer pledges as collateral funds that the consumer deposits in an account held by the creditor. The creditor withdraws sums from that account to supplement the consumer's periodic payments. Creditors may treat these pledged accounts as required deposits or they may treat them as consumer buydowns in accordance with the commentary to Section 1026.17(c)(1).

Paragraph 18(c)(1)(i)

1. Amounts paid to consumer. This encompasses funds given to the consumer in the form of cash or a check, including joint proceeds checks, as well as funds placed in an asset account. It may include money in an interest-bearing account even if that amount is considered a required deposit under Section 1026.18(r). For example, in a transaction with total loan proceeds of $500, the consumer receives a check for $300 and $200 is required by the creditor to be put into an interest-bearing account. Whether or not the $200 is a required deposit, it is part of the amount financed. At the creditor's option, it may be broken out and labeled in the itemization of the amount financed.


Answer Richard Insley: For construction loans, Appendix D deals specifically with interest reserves.

First published on 3/18/13

First published on 03/18/2013

Filed under: 
Filed under lending as: 

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