Underwriting Bulletin No. 94

August 11, 2003

SUBJECT:  Good Funds

Attached please find Home Office Bulletin #HONA 154. As you know, Georgia’s “Good Funds Law” is found at O.C.G.A § 44-14-13. Please review same to make sure the funds you are receiving at closing are in compliance.

If you have any questions, please call the Georgia State Underwriting Department at (404) 250-1604 or (800) 328-2642.

Case No: HONA 154

Filed: 08-06-2003

Name: Good Funds

Written By: Wayne Condict

It’s time again to chant the “good funds” mantra. There are many reasons why we should never close on an uncollected check. The account out of which the check is issued may be overdrawn because of cash flow problems or outright fraud.

We’ve recently heard of an ongoing problem with a retail mortgage banker that is not able to fund its loans. The retail mortgage lender’s line of credit from its warehouse lender is not large enough to accommodate the volume of loans that it has committed to fund. The retail mortgage banker does not have enough money available to cover all of the loans proceeds checks that it has issued. The funding checks will bounce unless additional money can be located to cover the outstanding loan proceeds checks (either from the sale of loan packages to pay down its credit line or from a second warehouse lender stepping in to help). With interest rates rising, decreasing volume of refinance business and the slow down in sales of loans on the secondary market, this problem may become more widespread among mortgage bankers.

We have paid for expensive lessons in the past. Let us all remember Island Mortgage so that we do not repeat those mistakes. Many states have so-called “good funds” laws. Some states do not. Under the language of many of these laws, an instrument can represent “good funds” and yet not be collected funds. The rule of reason dictates that no transaction in any state should be closed in reliance on an uncollected check unless it is certified for payment or issued by a bank on its own account or by some other credible financial institution. Better yet, have the loan funds deposited electronically by wire.

If you have any questions, please feel free to contact the Georgia State Underwriting Department at (404) 250-1604 or (800) 328-2642.

Printable version: ub94.pdf*

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