Anti – Predatory Lending Policy

“Predatory” lending is an important issue facing the residential mortgage industry.  First National Bank strongly disapproves of abusive or predatory lending practices by any of its employees or agents.  First National Bank understands that predatory lending creates unaffordable home loans and increases the risk that a borrower will lose his/her home.   Increases in foreclosures and loan repayment defaults increase the cost of homeownership financing for all.

The First National Bank Anti-Predatory Lending Policy outlines the characteristics of loans often found to be “Predatory”.  The existence of one (1) or more of these characteristics may deem the mortgage to be ineligible for origination, sale or servicing by First National Bank.

The characteristics of “Predatory Lending” that First National Bank will account for are:

Borrowers Should Not Be Steered to Inappropriate Products:   Borrowers should be offered the best available product for which the borrower would qualify based on his/her creditworthiness. 

All Borrowers Should Be Fully Informed of all Loan Terms and Conditions, Including the Risks and Benefits of the Loan Transaction:  Applicable disclosures should comply with legal requirements and should provide adequate explanation of all pertinent loan terms and conditions.  In addition, marketing practices and materials should not be deceptive or exploitive.

Should Not “Flip” Customers:  “Flipping” refers to the practice where a lender refinances a loan with a larger loan where the additional proceeds are largely used for fees and charges, and resulting in the borrower’s equity being stripped from the property.  A 12-month sales history is required that must be validated by the appraisal to detect artificially inflated values.  Loan transactions for properties with multiple refinances in the last 24 months must also demonstrate an economic value to the customer. 

High Cost Loans:   Loans with excessive interest rates.  The high rate may be a sign of product steering or of a mortgage that will be unaffordable to the borrower.

Loans With Excessive Points or Fees - Loans with excessive fees or points.  Fees and/or points that exceed 5% of the loan amount will not be eligible for origination, purchase, or servicing by First National Bank.  The definition of “points and fees’ will follow the Home Ownership and Equity Protection Act of 1994.

Borrower’s Ability to Repay - Lenders should reasonably ensure a borrower’s ability to repay the mortgage.  This is especially true for mortgages with complex features such as balloons or adjustable rates.  The loans originated, purchased or serviced by First National Bank will also be underwritten by Desktop Underwriter (DU) or another automated underwriting software.  Any exceptions to the recommendation by the automated system will be addressed and documented in the file.  These processes will help to further ensure the borrower’s ability to repay the mortgage.

Insurance Bundling:   Lump-sum insurance products, such as credit life insurance, disability insurance, home warranties, etc., should not be a condition of the loan.  The practice of financing lump sum or single-premium credit life insurance or similar products should not be engaged in, and such practices are prohibited in any transaction in which it is involved.

Prepayment Penalties – Loans with prepayment penalties are found to be predatory lending and therefore not eligible for sale to the secondary market.  Loans with prepayment penalties must be negotiated with First National Bank and only allowed when the following requirements are met:  the borrower must receive a benefit (lower rate or fee reduction) for taking on a prepayment penalty, the borrower must have been able to also choose a mortgage loan without a prepayment penalty, and the terms of the prepayment penalty must be properly disclosed to the customer. 

Full File Credit Reporting - All loans originated, purchased or serviced by First National Bank will be reported to the credit services monthly.  Reporting such information enables customers to improve their credit profile and have access to more favorable financing.  The loans will be coded as:  new origination, current, delinquent (30-60-90 days etc.), foreclosed or charged-off.

Escrow Deposit Accounts - First National Bank will allow any borrower to establish and maintain an escrow account for the payment of any one or all of the following:  homeowners insurance, flood insurance, real estate taxes, mortgage insurance, condo or association fees, or any other fees or items associated with the mortgage.   

Up charging:   Up charging is an assessment of extra charges above an actual third party fee.  First National Bank has prohibited the collection of any excess fees above an actual third party fee. 

Fair Lending/Non-Discrimination.   First National Bank is an equal housing lender and, in accordance with the Federal Equal Credit Opportunity Act, employs business practices that promote fair landing and will not tolerate discrimination relative to borrower race, color, religion, sex, handicap, familial status, age, national origin or ancestry.  We fully support the letter and spirit of these laws and do not condone discrimination on any mortgage transaction.