Mortgage Note Loan Compliance Checks
“Compliance” essentially means playing by the rules. And it’s really important to play by the rules in finance.
Whether you’re an individual or an institutional investor, it’s good to know you’re in compliance—when you’re buying or selling a Note.
Most institutional Note buyers run compliance checks through a vendor, but it isn’t a bad idea to run compliance checks even when you’re buying loans for yourself.
The Truth in Lending Act (TILA) prescribes uniform methods for computing the cost of credit, for disclosing credit terms, and for resolving errors on certain types of credit accounts. A Truth in Lending disclosure statement—replaced by the Loan Estimate Form in 2015—provides information about the costs of one’s credit, including the Annual Percentage Rate (APR).
Compliance is especially important with high-cost loans. Historically, high-cost loan transactions have been referred to as HOEPA loans or Section 32 loans. The Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994 as an amendment to the Truth in Lending Act. The Act was designed to address abusive practices in refinances and closed-end home equity loans with high-interest rates or high fees.
Finally, in a Note sale, regarding compliance, the topic of Regulation Z (RENZ) occasionally comes up. RENZ defines a higher-priced mortgage loan as a loan on a primary home with an APR that exceeds the average prime rate by 1.5% or more for first liens or by 3.5% or more for junior liens or second liens.
My recommendation: be aware of mortgage note loan compliance topics and consider compliance checks through a reputable vendor before buying a loan.
Play by the rules.
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