IBA Compliance Connection

Your go to source for compliance!

We are a national bank, and we offer escrow accounts to mortgage loan customers who request them. Are we required to provide the Mortgage Escrow Account Act disclosure at closing for refinance transactions on owner-occupied residential real estate, or is it required only for purchase money transactions?

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The Illinois Mortgage Escrow Account Act applies only to mortgage loans secured by owner-occupied, single-family residential real estate, when made “for the purpose of enabling another to purchase a residence.” Consequently, we do not believe that the law would apply to a refinance transaction, since it would not be made for the purpose of purchasing a residence.

We should add that because your bank is a national bank, we do not believe that your bank is required to follow the requirements in the Mortgage Escrow Account Act. In our view, the National Bank Act preempts state laws relating to escrow accounts for both residential and nonresidential loans for national banks. At the same time, we believe that some national banks in Illinois do comply with the Mortgage Escrow Account Act, for competitive purposes.

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 910/4 (“On or after the effective date of this Act, each mortgage lender in conjunction with the granting or servicing of a mortgage on a single-family owner occupied residential property, shall comply with the provisions of this Act.”)
  • Illinois Mortgage Escrow Account Act, 765 ILCS 910/2(c) (“‘Mortgage Lender’ means any bank, savings bank, savings and loan association, credit union, mortgage banker, or other institution, association, partnership, corporation or person who extends the loan of monies for the purpose of enabling another to purchase a residence or who services the loan, including successors in interest of the foregoing.”)
  • OCC Regulations, 12 CFR 34.4(a) (“A national bank may make real estate loans under 12 U.S.C. 371 and §34.4, without regard to state law limitations concerning: . . . (6) Escrow accounts, impound accounts, or 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; . . .”)