How to disclose a blanket loan?
Not something you see every day, so let's take a look through a loan scenario where we need to disclose a blanket loan.
A blanket loan is simply one loan securing multiple properties.
Blanket Loan Example:
Here's an example. Jim and Linda are a married couple nearing retirement. They have 80% equity in their primary home and want to purchase a vacation home. Most of their assets are tied up in investments, so they don't want to use too much cash to purchase the vacation home (planning to pay it off later when Jim is happier with their stock portfolio's position!) Jim and Linda come in to your company asking for a blanket loan, hoping to get a better interest rate by offering up both properties as collateral.
Send the Question to Compliance:
This is the first time in a while (and the first under TRID) where you entertain such a loan. You e-mail the docs to your compliance officer and ask, "Anything I should know about disclosing this on the Loan Estimate?"
Here's the response:
The loan Purpose is correctly disclosed as a Purchase, just in case you had any doubt. Good job!
Both properties should be shown on the Loan Estimate. You'll need an addendum to add the second property because there is no space for this. When your system makes it difficult to do this, here's the language and citation from the regulation to help make your case with your doc provider's customer service rep:
MULTIPLE PROPERTIES.
Where more than one property secures the credit transaction, § 1026.37(a)(6) requires disclosure of all properties. If the addresses of all properties securing the transaction do not fit in the space allocated on the Loan Estimate, an additional page with that information with respect to real properties may be appended to the end of the form. Official Comment to 1026.37(a)(6)-3.
3. I believe the property costs of both properties should be disclosed in Estimated Taxes, Insurance, and Assessments on page 1. Two problems with this:
First, even if you escrow for property taxes on the vacation home, you certainly won't escrow property taxes on the primary home. That means the property taxes on page 1 will show as "SOME" under the "In Escrow?" Column.
Second, I do not believe you'll show the cost of both properties on page 2 in Sections F. Prepaids and G. Initial Escrow Payment at Closing. So you have to find a way to show only the costs for the vacation home on page 2, while making sure the property costs for both come over on page 1. Doesn't seem TOO difficult but can certainly prove difficult depending on your computer skills. (Which reminds me of last week when I caught a colleague using a magnifying glass, an actual physical magnifying glass, to read a document on a computer screen.)
In Other News:
Lenders have to know they can't charge per diem interest between closing and funding dates with loans subject to Right of Rescission. Not something we're used to seeing in our compliance audits. Nonetheless, recent Massachusetts enforcement action discovering just that.
How big is your home? A San Francisco home just 363 square feet recently sold for $550,000! That's $1,500 per square foot! If your house has 2,500 square foot, you'd be sitting on a cool $37.5 million if that house was in San Fran.
Congratulations to my friend Jeremy Potter making the jump to compliance counsel at Quicken Loans. Appreciate his efforts to stay in touch, including his "Saturday Morning Coffee" blog, although that's going to be tough to keep up with since the launch of my rival "Friday Night Tequila" blog.
How good is your organization at timely decision making? Stall too long on decisions and your organization will be unable to compete. But jumping to conclusions without considering the right information (or asking the right people) will hurt your organization too. In the mortgage business there is certainly a need for rapid-fire decision making from time to time. It's simply impossible to be a perfectionist in this industry, as we're forced to make decisions with incomplete information sometimes. But where's the line? And is finding this line key to mortgage lending success? Can't help but think companies on one end of the spectrum (too slow) are the same banks moving away from mortgage lending, but that ones on the other end of the spectrum (too fast) are the ones making headlines with the CFPB (and not in the good way!) What do you think?
"We have taken action against an individual loan officer for illegal mortgage fee-shifting, This should send a strong message that the law must be followed not only by large financial institutions, but also by the individuals who work for them."
- Richard Cordray (discussing recent Eghbali case)
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