Higher-Priced Mortgage Loans Impound Requirements

[Bob Malecki]

Well, this note biz always has a new twist thanks to the feds. We just got this email from our servicer in regards to a loan that we purchased which is a fully amortized, owner occupied, 30 year P&I note at 12% coupon rate. Seems that there is a federal statute for Higher-Priced Mortgage Loans which require that the lender set up impound for BOTH tax and insurance. The person from whom we purchased only impounded taxes. Go figure.

We appreciate you responding so quickly to our concern regarding this loan. We appreciate doing business with you and your company, but unfortunately our legal counsel will not allow us to board “Higher-Priced Mortgage Loans” (HPMLs) that were not impounded for both taxes and insurance from the date of origination (§ 1026.35).

(b)Escrow accounts—(1)Requirement to escrow for property taxes and insurance.Except as provided in paragraph (b)(2) of this section, a creditor may not extend a higher-priced mortgage loan secured by a first lien on a consumer's principal dwelling unless an escrow account is established before consummation for payment of property taxes and premiums for mortgage-related insurance required by the creditor, such as insurance against loss of or damage to property, or against liability arising out of the ownership or use of the property, or insurance protecting the creditor against the consumer's default or other credit loss. For purposes of this paragraph (b), the term “escrow account” has the same meaning as under Regulation X (12 CFR 1024.17(b)), as amended.

Link to § 1026.35: http://www.ecfr.gov/cgi-bin/text-idx?SID=cdebe04e0499aa27198d7fded7986741&mc=true&node=pt12.9.1026&rgn=div5#se12.9.1026_135

This loan is currently out of compliance with this federal statute because the loan was not impounded for insurance although the NOTE requires the borrower to pay all homeowners insurance premiums. Consequently, we will transfer loan servicing, without cost, back to you or another servicer of your choosing. Please advise as to your preference. 

[Bob Malecki]

Originally posted by @Brent Coombs:

Who on earth is happy to pay you 12% for 30 years, fixed? (How many years are up so far?)

Does this one smack of "non-performing" in the near future, to anyone else?

[I'm just asking. I've no experience of notes whatsoever. Please enlighten me if I'm off base]...

There are, yes, borrowers who have bad credit and/or willing to take a high APR if the payment fits their budget. Also, he will most likely refinance out of our loan once he gets his credit repaired or finds another financing method that makes better sense.