June 16, 2011 at 9:17 pm EDT #2353AnonymousGuest
If we make a consumer real estate loan, secured with a Second Mortgage on the principal dwelling and the funds will be used to pay off a Sallie Mae student loan, would this loan be considered a Private Education Loan or just a consumer 2nd mortgage real estate? This customer is no longer in school and has been making P&I payments to Sallie Mae for about 10 years.
If it’s considered a second mortgage consumer real estate, I understand Reg Z, Respa, Right of Recission, etc would apply. How would we handle the GFE/HUD concerning the property taxes and homeowners insurance amounts? I assume we will still need to disclose those amounts on those documents. If the loan ends up as a higher priced mortgage, being this is a second mortgage, escrow would not be required. Please advise me if I am incorrect.
Thanks!July 18, 2011 at 7:20 am EDT #2720jholzknechtKeymaster
The term “private education loan means an extension of credit that:
(i) Is not made, insured, or guaranteed under title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.); and
(ii) Is extended to a consumer expressly, in whole or in part, for postsecondary educational expenses, regardless of whether the loan is provided by the educational institution that the student attends;
The term does not include:
(iii) Open-end credit or any loan that is secured by real property or a dwelling; and
(iv) An extension of credit in which the covered educational institution is the creditor if:
(A) The term of the extension of credit is 90 days or less; or
(B) An interest rate will not be applied to the credit balance and the term of the extension of credit is one year or less, even if the credit is payable in more than four installments.
Since your loan is secured by real property or a dwelling it is not a private education loan.
You are correct that Regulation Z and RESPA do apply to the transaction. Since the loan is a second mortgage the transaction is not a higher-priced mortgage loan and no escrow is required for taxes or property insurance. Since there isno escrow block 9 in the GFE is blank. The cost of homeowners insurance is generally shown in block 11 of the GFE.
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