Reg O And Executive Loans From Affiliates

by Mary Beth Guard, BOL Guru

Question: Two of our executive officers (they are decision makers and our board resolution lists them as executive officers) have recently gotten mortgage loans from our mortgage affiliate. Our mortgage affiliate sells loans quickly (both of these were sold within about 10 days) to the secondary market. To meet the Reg O requirements, should their mortgages have had the demand clause at the time they were made?

Answer: The demand clause must be inserted when the bank itself makes a loan to an Executive Officer. The demand clause provides that if at any time the EO becomes indebted to another bank or banks in an amount greater than he could borrow from your bank, you have the right to demand payment on his loan from your institution.

So, when your mortgage company affiliate makes a loan to an EO of your bank, I don't believe there is any requirement for the demand clause to be in the note.

The original version appeared in the April 2002 edition of the Oklahoma Bankers Association Compliance Informer.

First published on BankersOnline.com 8/19/02