Exhibit 15.1
Sample Real Estate Lending Policy
Applicable Laws/Regulations:
Areas of Responsibility:
National Credit Union Administration
(NCUA) Rules and Regulations,
701.21(g), 701.31, 722
Regulation C  Home Mortgage Disclosure
Act, 12 CFR 1003
Regulation X  Real Estate Settlement
Procedures Act, 12 CFR 1024
Regulation Z  Truth in Lending,
12 CFR 1026
Public Law No. 105-216, Homeowners’
Protection Act of 1997
Vice President of Lending
Last Board Review:
August 20XX
Last Revision:
February 20XX
POLICY STATEMENT
For the purpose of this policy, a real estate loan is a loan predicated on a security interest in real property,
wholly secured by the property being financed. Hometown Federal Credit Union (Hometown FCU)
grants real estate loans for the acquisition of one- to four-family dwellings, for terms up to 40 years, that
are or will become the principal residence of the member-borrower. Such loans are to be secured by a
perfected first lien, consisting of a properly executed and recorded security instrument, in favor of the
credit union. No loan will be secured by a residence that is physically located outside the home county of
the credit union or the counties immediately bordering the credit union location.
IN GENERAL
Recognizing that real estate lending is a highly specialized field, the board of directors requires that the
credit union employ individual real estate lending officers having a minimum of three years’ experience
and proven expertise in real estate lending.
Real estate lending requires extra administration and a coordinated effort by many professional parties.
The written credit presentation will acknowledge the firms or individuals who have served as legal
counsel for the credit union, settlement agency, or attorney, appraiser, title insurance company, or other
significant resources on which financial and documentary information is based. Credit union management
is responsible for using the professional firms or individuals that have a reputation acceptable to the credit
union.
Exhibit 15.1
Sample Real Estate Lending Policy (cont.)
NONDISCRIMINATION
In no instance will the credit union deny a real estate-related loan or discourage an application for such a
loan on the basis of race, color, national origin, religion, sex, handicap, or familial status (i.e., having
children under the age of 18).
Credit union employees are further prohibited from considering any of the following factors in connection
with a real estate loan:

Age or location of the dwelling

ZIP code of the applicant’s current address

Previous home ownership

Age or location of dwellings in the neighborhood of the dwelling being purchased

Income level of residents in the neighborhood of the dwelling
DOCUMENTATION
The credit union will meet the requirements described below regarding documentation.
Loan Application
In compliance with section 701.21(g)(3) of the NCUA Rules and Regulations, the loan application will be
submitted on a standard Federal Housing Administration (FHA), Veterans Administration (VA), Federal
Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), or
Federal Home Loan Mortgage Corporation/Federal National Mortgage Association (FHLMC/FNMA)
application form.
Security Instrument and Note
The security instrument and note will be executed on the most current version of the FHA, VA, FHLMC,
FNMA, or FHLMC/FNMA uniform instruments for the jurisdiction in which the property is located.
Other Documentation
The credit union will also meet the following documentation requirements:

Title binders and title insurance policies are required, showing clear title and naming the credit
union as additionally insured.
Exhibit 15.1
Sample Real Estate Lending Policy (cont.)

A current survey of the property is required and must be acceptable to the title company and
certified by the credit union.

The credit union will be named additional loss payee on insurance policies for general public
liability, fire, hazards, and floods.

An appraisal must be performed by a state-certified or state-licensed appraiser.

Residential first and second trusts will meet all federal, state, and local statute and regulatory
requirements.

All documentation will be prepared or reviewed by an attorney, the cost of which will be borne
by the borrower.

Loan documents should include language to protect the credit union against potential
environmental losses and liabilities.
ANALYSIS
Financial analysis is to include determining the capacity of the borrower to repay the obligation. It is
imperative that financial information is verifiable by:

Making credit checks.

Reviewing asset values through appraisals and tax returns.

Ascertaining that there is sufficient cash flow to meet all debt service requirements.

Interviewing references of the principals.
REQUIRED DISCLOSURES
All credit union personnel involved in any phase of real estate lending are to be thoroughly familiar with
all regulatory disclosure requirements relating to such transactions. The vice president of lending will
assume responsibility for seeing that the potential borrower (and in certain instances the seller) is
provided with all disclosures required by the Real Estate Settlement Procedures Act (RESPA), and
Regulation Z, truth in lending. These disclosures are to be distributed to the parties involved on a timely
basis and in the format prescribed, to include:

A good faith estimate of all closing costs, including loan origination fees, loan discounts, and
appraisal fees, within three days after receipt of a completed loan application.
Exhibit 15.1
Sample Real Estate Lending Policy (cont.)

The special information booklet explaining the settlement process, within three days after receipt
of the loan application.

An application disclosure statement indicating whether loan servicing rights may be transferred,
assigned, or sold at any time the loan is outstanding.

The uniform settlement statement (HUD-1), compiled by the individual conducting the
settlement, itemizing all charges that the borrower and seller can expect to be given to the buyer
and seller at closing or one day prior to closing.

Early truth-in-lending disclosures required under Regulation Z that will be disclosed before the
loan is consummated, or caused to be delivered to the borrower within three business days of
receipt of the application, whichever is earlier. This disclosure includes an estimate of the annual
percentage rate, finance charge, the total number and amount of payments, and a payment
schedule.

An Informed Consumer Choice Disclosure Notice provided to borrowers who apply for FHAinsured home mortgages. This disclosure consists of a one-page analysis comparing mortgage
costs of the FHA-insured mortgage to those of similar conventional mortgage products offered by
the credit union, and for which the borrower might qualify.
Escrow Account Requirements for Higher Priced Mortgage Loans (HPML) [Effective for loan
applications taken on or after June 1, 2013]
Note: Your credit union may be exempt from this requirement if it is considered a small or rural creditor.
A small or rural creditor is exempt from the escrow requirements for loans they hold in their own
portfolio. They are defined as creditors that:

During the preceding calendar year, extended more than 50 percent of its total covered
transactions secured by a first lien, on properties that are located in counties designated either
“rural” or “underserved” by the Bureau

During the preceding calendar year, together with affiliates originated 500 or fewer covered
transactions, and

As of the end of the preceding calendar year, had total assets of less than $2,000,000,000; (this
asset threshold shall adjust automatically each year, based on the year-to-year change in the
average of the Member Price Index for Urban Wage Earners and Clerical Workers, not seasonally
adjusted, for each 12-month period ending in November, with rounding to the nearest million
dollars
Furthermore, neither the creditor nor its affiliate may maintain an escrow account for any extension of
member credit secured by real property or a dwelling that the creditor or its affiliate currently
services, other than:
Exhibit 15.1
Sample Real Estate Lending Policy (cont.)

Escrow accounts established for first-lien higher-priced mortgage loans on or after April 1, 2010,
and before June 1, 2013; or

Escrow accounts established after consummation as an accommodation to distressed members to
assist such members in avoiding default or foreclosure. ]
ESCROW REQUIRMENTS (12 CFR 1026.35(B)
We may not extend a higher-priced mortgage loan secured by a first lien on a member’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 member’s default or other credit loss.
We may cancel the escrow account when the loan is paid off or if we receive a request from the
member five years or more after the date of the loan. We may not cancel the escrow account, even if
the member requests it, unless:

The loan to value on the loan is 80 percent of the original value of the property and

The member currently is not delinquent or in default on the loan
Escrow Accounts
In compliance with the provisions of section 10(c)(2) of RESPA, the credit union will submit annual
escrow statements to each borrower and will remit tax, insurance, and other payments when they become
due.
Within 30 days of the close of each escrow account year, the credit union will provide to the borrower a
RESPA borrower statement itemizing the following information:

The amount of the monthly payment, clearly stating which portion of the payment was applied to
interest and which portion was paid to principal

Which part of the monthly payment went into the escrow account

The total amount put into the escrow account during the reporting period

An itemized statement of the total amounts paid from the escrow account

The balance remaining in escrow at the end of the period
Exhibit 15.1
Sample Real Estate Lending Policy (cont.)

All interest paid on escrow funds

A notice of any shortages in the account
Disclosures Under the RESPA Escrow Accounting Rules
Mortgage Escrow Accounts
The first amendment clarifies whether disbursements from mortgage escrow accounts must be made on an
annual or an installment basis. As a servicer, Hometown FCU is required to make escrow payments in
time to avoid late payment penalties. In the event the funds in the escrow account are insufficient to make
such a payment, the credit union must advance funds to make the payment unless the borrower is more
than 30 days past due. When the taxing jurisdiction offers neither a discount for annual payments nor
imposes a fee for installment payments, the credit union must make installment payments, unless the
credit union, as servicer or originator, and the borrower agree to a different payment schedule. If the
taxing jurisdiction offers a discount for annual payments or imposes an additional charge for installment
payments, the servicer may, but is not required to, make an annual disbursement. In this case, Hometown
FCU, at the discretion of the mortgage loan servicing department, may follow the preference of the
borrower.
As servicer, Hometown FCU will not condition loan approval or any loan term on the borrower’s
agreeing to a different payment basis or payment date for property taxes. The agreement entered into
between Hometown FCU and the borrower will avoid late payment penalties, comply with normal
lending practices of the credit union and local custom, and constitute prudent lending payments.
When paying property taxes, the credit union will total all payments associated with paying annually,
total all payments associated with paying in installments, and compare the two totals, including all
associated discounts and fees. If the total for annual payments is greater than the total associated with
paying in installments, the credit union will pay the property taxes in installments, unless the borrower
agrees to annual payments. Conversely, if the total for paying in installments is greater than the total for
paying annually, the credit union may elect to pay annually.
Payment Shock
The second amendment clarifies the proper accounting method in the calculation of escrow payments
where the loan originator or servicer anticipates that disbursements for such items as property taxes will
increase markedly in the second year of the escrow account, and where “payment shock” (the member’s
experiencing a substantial increase in escrow payments in the second year) will result. The final rule does
not require servicers or originators to provide borrowers with a disclosure concerning payment shock
when the originator or servicer expects a substantial increase in escrow account payments during the
second year. However, HUD has created a sample disclosure, Consumer Disclosure for Voluntary Escrow
Payments, shown in Exhibit 15.2. It will be the policy of Hometown FCU to make this disclosure, using
the HUD format, along with the initial escrow account statement required under RESPA.
Exhibit 15.1
Sample Real Estate Lending Policy (cont.)
PROHIBITED ACTIVITY
Section 1026.32 of Regulation Z, Truth-in-Lending Act, implements the Home Ownership Equity
Protection Act (HOEPA) and covers closed-end mortgage loans if either of the following situations
applies:

The annual percentage rate (APR) exceeds the rate for Treasury securities with a comparable
maturity by more than 10 percent for subordinate lien loans, and 8 percent for first lien
mortgages.

The points and fees paid by the borrower exceed the greater of 8 percent of the loan amount or an
amount that is adjusted annually based on the Consumer Price Index.
Under this part of the regulation the credit union, when extending credit covered by HOEPA, is prohibited
from the following:

Paying a contractor under a home improvement contract from a mortgage covered by the
proceeds of the mortgage other than by an instrument payable to the borrower or jointly to the
borrower and the contractor; or at the election of the consumer through a third-party escrow agent
in accordance with the terms established in a written agreement signed by the borrower, the
creditor, and the contractor prior to disbursement.

Selling or assigning a mortgage subject to HOEPA without furnishing the following statement to
the purchaser or assignee: “NOTICE: This is a mortgage subject to the special rules under the
federal Truth in Lending Act. Purchasers or assignees of this mortgage could be liable for all
claims and defenses with respect to the mortgage that the borrower could assert against the
creditor.”

Within one year of having extended credit subject to HOEPA, refinancing any HOEPA loan to
the same borrower into another loan subject to HOEPA unless the refinancing is in the borrower’s
interest. An assignee holding or servicing an extension of mortgage credit subject to HOEPA,
must not, for the remainder of the one-year period following the date of origination of the credit,
refinance any such loan to the same borrower into another loan subject to HOEPA, unless the
refinancing is in the borrower’s interest. The credit union as creditor or assignee is prohibited
from engaging in actions or practices to evade this provision, including a pattern or practice of
arranging for the refinancing of its own loans by affiliates or unaffiliated creditors, or modifying a
loan agreement (whether or not the existing loan is satisfied and replaced by the new loan) and
charging a fee.

Engaging in a pattern or practice of extending credit subject to HOEPA based on the borrower’s
collateral without regard to repayment ability, including the current and expected income, current
Exhibit 15.1
Sample Real Estate Lending Policy (cont.)
obligations, and employment. It will be presumed that the credit union as creditor has violated
this paragraph if it engages in a pattern or practice of making loans subject to HOEPA without
verifying and documenting the borrower’s ability to repay.
Limitations on High Cost Loans
If a loan is subject to the rules in Regulation Z 1026.32, then it may not include the following terms:

A balloon payment of less than five years

A payment schedule with regular periodic payments that cause the principal balance to increase

A payment schedule that consolidates more than two periodic payments and pays them in
advance from the proceeds

An increase in the interest rate after default

A refund calculated by a method less favorable than the actuarial for rebates of interest arising
from a loan acceleration due to default

Prepayment penalties unless:
 The penalty will not apply after the two-year period following consummation;
 The penalty will not apply if the source of the prepayment funds is a refinancing by the
creditor or an affiliate of the creditor;
 At consummation, the consumer's total monthly debt payments (including amounts owed
under the mortgage) do not exceed 50 percent of the consumer's monthly gross income; and
 The amount of the periodic payment of principal or interest or both may not change during
the four-year period following consummation.

Due-on-demand clause unless:
 There is fraud or material misrepresentation by the consumer in connection with the loan;
 The consumer fails to meet the repayment terms of the agreement for any outstanding
balance; or
 There is any action or inaction by the consumer that adversely affects the creditor's security
for the loan, or any right of the creditor in such security.
Higher Priced Mortgages
Note: High cost loans (HOEPA loans) are also subject to these rules since they are covered by both
sections by virtue of their rate.
Exhibit 15.1
Sample Real Estate Lending Policy (cont.)
A higher priced mortgage is a consumer credit transaction secured by the consumer's principal dwelling
with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as
of the date the interest rate is set by 1.5 or more percentage points for loans secured by a first lien on a
dwelling, or by 3.5 or more percentage points for loans secured by a subordinate lien on a dwelling.
Note: You can find tables of the average prime offer rates for both fixed- and variable-rate loans on the
FFIEC website at http://www.ffiec.gov/ratespread/newcalc.aspx ]
It does not include a transaction to finance the initial construction of a dwelling, a temporary or “bridge”
loan with a term of twelve months or less, such as a loan to purchase a new dwelling where the consumer
plans to sell a current dwelling within twelve months, a reverse-mortgage transaction or a home equity
line of credit.
Higher-priced mortgage loans are subject to the following restrictions:
Repayment ability. The credit union may not extend credit based on the value of the consumer's collateral
without regard to the consumer's repayment ability as of consummation. (This is the same requirement as
for high cost loans subject to 1026.32)
Prepayment penalties. A loan may not include a penalty unless the penalty is otherwise permitted by law
and

The penalty will not apply after the two-year period following consummation;

The penalty will not apply if the source of the prepayment funds is a refinancing by the creditor
or an affiliate of the creditor; and

The amount of the periodic payment of principal or interest or Both may not change during the
four-year period following consummation.
Escrows. The credit must require an escrow account for taxes and insurance on first lien loans secured by
the member’s principal dwelling. This requirement does not apply to jumbo mortgages ( a loan with a
principal obligation at consummation that exceeds the limit in effect as of the date the transaction's
interest rate is set for the maximum principal obligation eligible for purchase by Freddie Mac) unless the
APR is 2.5 % over the prime offer rate. The credit union may permit a member to cancel the escrow
account in response to a member’s dated written request to cancel the escrow account that is received no
earlier than 365 days after consummation.
The credit union will not attempt to evade the high cost or higher priced mortgage rules be structuring
loans as open-end lines of credit.
Exhibit 15.1
Sample Real Estate Lending Policy (cont.)
EQUITY AND COLLATERAL RESTRICTIONS
When a real estate loan is for purchase money purposes and the property will be offered as collateral to
the loan, the borrower must have a minimum of 15 percent cash equity in the property based on its
appraised value.
Only dwellings located on land that is zoned as residential, subdivided, and developed will be accepted as
collateral.
PRICING
Up-front paid points will be charged to cover administrative costs of underwriting, inspections, and the
maintaining of escrow.
Variable-rate mortgages will be indexed above the New York prime, as quoted in the Wall Street Journal.
Adjustable-rate mortgages will be based on Treasury constant maturities as quoted in the Federal Reserve
Statistical Release Bulletin.
Fixed-rate mortgages will be based on current market quotations.
ENVIRONMENTAL ASSESSMENT
Care should be taken to protect the credit union from losses resulting from making loans on
environmentally damaged property. The credit union should be aware of environmental conditions
prevalent in the community that may affect the value of real estate. This may include lead paint, prior
noxious use, and proximity to hazardous waste sites. In the case of commercial real estate, a Phase One
Environmental Impact Statement should be required.
FLOOD INSURANCE REQUIREMENTS
The credit union is required by part 760 of the NCUA Rules and Regulations to escrow flood insurance
premiums (when escrow is required for other items in connection with a real estate loan) for improved
residential real estate or mobile homes serving as collateral for a loan if the security property is located in
a special flood hazard area and when the community in which the property is located participates in the
National Flood Insurance Program. The credit union will not make, increase, or renew any real estate loan
unless the building or mobile home, and any other personal property securing the loan, is covered by
flood insurance for the term of the loan. The amount of insurance must be at least the lesser of the
outstanding principal balance of the loan or the maximum limit of coverage available for the property
under the National Flood Insurance should be purchased for the less of the loan amount, the replacement
cost value of the structure or the maximum available under the National Flood Insurance Program (NFIP).
Exhibit 15.1
Sample Real Estate Lending Policy (cont.)
Exemptions from Flood Insurance Requirements
The flood insurance requirement does not apply to the following:

Any state-owned property covered under a policy of self-insurance that is satisfactory to the
director of the Federal Emergency Management Agency (FEMA), who publishes and periodically
revises a list of states falling within this exception.

Property securing any loan with an original principal balance of $5,000 or less and a repayment
term of one year or less.
Escrow Requirements for Flood Insurance Premiums
Because the credit union requires the escrow of taxes, insurance premiums, fees, and other charges for
loans secured by residential improved real estate or a mobile home, it is also required to escrow all
premiums and fees for flood insurance on such loans. The credit union, or any servicer acting on its
behalf, will deposit the flood insurance premiums on behalf of the borrower in an escrow account and pay
the amount owed to the insurance provider from that account upon receipt of notice from the director of
FEMA or other provider of insurance that premiums are due.
Standard Flood Hazard Determination Form
As required by part 760 of the NCUA Rules and Regulations, the credit union will use the standard flood
hazard determination form developed by FEMA when determining whether a building or mobile home
used as collateral security for a loan is or will be located in a special flood hazard area in which flood
insurance is available under the National Flood Insurance Act.
Forced Placement of Flood Insurance
If at any time during the term of a designated loan it is determined that the building or mobile home and
any personal property securing the loan is not covered by flood insurance or is covered by flood insurance
in an amount less than the required amount, the credit union or its servicer will notify the borrower that he
or she should obtain flood insurance, at the borrower’s expense, for the remaining term of the loan. If the
borrower fails to obtain flood insurance within 45 days after notification, the credit union or its servicer
will purchase insurance on behalf of the borrower and charge the borrower for premiums and fees
incurred in the purchase of the insurance.
Flood Insurance Notification Requirements
If at any time the credit union makes, increases, extends, or renews a loan secured by a building or mobile
home that is located in a special flood hazard area, the credit union will:
Exhibit 15.1
Sample Real Estate Lending Policy (cont.)

Provide a written notice of this fact, by mailing or delivering the notice to the borrower and the
servicer, even if flood insurance is not available for the collateral securing the loan. The notice
will be delivered as soon as practicably possible, but no later than the time the credit union
provides other similar notices concerning hazard insurance and taxes. (See Exhibit 15.1 for notice
format.)

Notify the director of FEMA of the identity of the servicer of the loan.

Notify the director of FEMA of any change in the servicer of a loan within 60 days after the
effective date of the transfer. (FEMA has delegated the authority for receipt of this notice to the
flood insurance coverage provider. Therefore, the credit union should notify the flood insurance
company.)
PRIVATE MORTGAGE INSURANCE (PMI)
It is the policy of this credit union to require that low-income and first-time home buyers who make down
payments of less than 20 percent of the purchase of a home where the credit union is the first lienholder
be required to buy private mortgage insurance (PMI) naming the credit union as beneficiary. Under the
Homeowners’ Protection Act of 1997, termination of such insurance will occur on the date the principal
balance of such residential mortgages reaches 78 percent of the original value of the property securing the
loan, based on the initial amortization schedule. The only exceptions are in cases where payments are not
current at the termination date. In such instances, termination of PMI will be delayed until the payments
are brought current.
Borrowers with good payment histories and who can provide evidence which shows that the property’s
value has not fallen below the original value of the property may request termination of their PMI prior to
the automatic termination date if the equity in the residence is unencumbered by a subordinate lien such
as a home equity loan. No cancellation request will be considered until the date on which the principal
balance of the mortgage, based on the initial amortization schedule, is scheduled to reach 80 percent of
the property’s original value.
Exempt from both automatic termination and request for cancellation are those mortgage transactions
considered by the loan committee to be of high risk at the time the loan was made. However, in no
instance will PMI payments be required of any borrower after the mid-point of the amortization period of
the loan, plus one month, has passed as long as the mortgage payments are current.
PMI Notice Requirements
A written notice will be required to be given to the borrowers who are subject to PMI. The notice will be
given at the time the mortgage is entered into and will outline the borrower’s right to final termination.
Exhibit 15.1
Sample Real Estate Lending Policy (cont.)
The credit union will provide certain notices when borrowers are required to purchase PMI under an
existing mortgage. These include a written annual notice which details the borrower’s right, if any, to
request cancellation. The notice must provide an address and telephone number that the borrower may use
to determine when requests for cancellation may be made. New borrowers where the purchase of PMI is
required must be provided with a similar written notice that outlines the borrower’s rights to request the
PMI cancellation and to the automatic termination. This notice will be provided at the time the loan is
made and annually thereafter.
Failure by the credit union to provide notice or to terminate PMI under the HPA will result in civil
liability.
REVIEW AND REPORTING
A current report showing the location by census tract, number and total, and amount of mortgage loans
originated or purchased by the credit union during the most recent calendar year will be publicly
displayed at all times in the main lobby of the credit union.
This policy will be reviewed for compliance and adequacy by the board annually at its August meeting.