We believe your bank must comply with the Illinois Mortgage Escrow Account Act’s second notice requirement when a loan reaches 65% of its original balance, regardless of whether the loan was originated before your bank converted its charter.

The Illinois Mortgage Escrow Account Act requires two notices to be delivered to customers at two different times — one notice at the loan’s closing, and a second notice when the mortgage is reduced to 65% of its original amount by timely payments of the borrower (provided the borrower is otherwise not in default). There is a reasonable argument that national banks are not required to follow these provisions, as the National Bank Act preempts state laws relating to escrow accounts for both residential and nonresidential loans for national banks.

Since your bank no longer holds a national bank charter and is now subject to the Illinois Mortgage Escrow Account Act, we do not believe you can avoid complying with this requirement. We believe that all of your loans, regardless of whether they were originated before the conversion, are now subject to the Illinois Mortgage Escrow Account Act’s second notice requirement.

However, we do not believe it is necessary to go back and issue the first notice for any loans originated before your conversion. Of course, going forward, you should provide the first notice required by the Act at all residential mortgage closings.

For resources related to our guidance, please see:

• Illinois Mortgage Escrow Account Act, 765 ILCS 910/11 (“Notice of the requirements of the Act shall be furnished in writing to the borrower at the date of closing.”)

• Illinois Mortgage Escrow Account Act, 765 ILCS 910/5 (“When the mortgage is reduced to 65% of its original amount by payments of the borrower, timely made according to the provisions of the loan agreement secured by the mortgage, and the borrower is otherwise not in default on the loan agreement, the mortgage lender must notify the borrower that he may terminate such escrow account or that he may elect to continue it until he requests a termination thereof, or until the mortgage is paid in full, whichever occurs first.”)

• OCC Regulations, 12 CFR 34.4(a) (“A national bank may make real estate loans under 12 U.S.C. 371 and § 34.3, without regard to state law limitations concerning: . . . (6) Escrow accounts, impound accounts, and similar accounts; . . .”)

• OCC Regulations, 12 CFR 7.4008(d) (“A national bank may make non-real estate loans without regard to state law limitations concerning: . . . (5) Escrow accounts, impound accounts, and similar accounts; . . .”)