IBA Compliance Connection

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We are an Illinois-chartered savings bank, and we are considering changing the fee we charge consumer borrowers for a mortgage loan modification. Typically, borrowers request these modifications to reduce the interest rate or change the term of their loan instead of doing a full refinance. These modifications are not for loss mitigation purposes. Are there any restrictions on the method we use to calculate these modification fees, and are there any regulatory issues (such as fair lending concerns) that we need to consider? We would use the same method to calculate the modification fees for all borrowers.

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Generally, a savings bank may charge a mortgage loan modification fee agreed to by the borrower, and we are not aware of any restrictions on the calculation method. We are not aware of fair lending concerns if you use the same method to calculate all borrowers’ modification fees.

The Illinois Savings Bank Act permits a savings bank to “enter into a written agreement with a borrower to modify, in any manner not inconsistent with the provisions of the Act, the terms of a loan as to the amount, time or method of the payments to be made, the interest rate, and any other provision of the loan contract.” The Illinois Interest Act also permits savings banks to “receive or contract to receive and collect interest and charges at any rate agreed upon by the savings bank or savings association and the borrower.” However, we note that modification fees are prohibited for “high-cost mortgages” as defined in Regulation Z and “high-risk home loans” as defined in the Illinois High Risk Home Loan Act.

For resources related to our guidance, please see:

  • Savings Bank Act, 205 ILCS 205/6006 (“A savings bank, at any time, may enter into a written agreement with a borrower to modify, in any manner not inconsistent with the provisions of this Act, the terms of a loan as to the amount, time or method of the payments to be made, the interest rate, and any other provision of the loan contract, and the loan contract and the security instrument shall not be prejudiced by the making of any modification, even if a modification was not provided for in the loan contract.”)
  • Interest Act, 815 ILCS 205/4(1) (“It is lawful for a savings bank chartered under the Savings Bank Act or a savings association chartered under the Illinois Savings and Loan Act of 1985 to receive or contract to receive and collect interest and charges at any rate agreed upon by the savings bank or savings association and the borrower.”)
  • Regulation Z, 12 CFR 1026.34(a)(7) (“Prohibited acts or practices for high-cost mortgages. . . . (7) A creditor, successor-in-interest, assignee, or any agent of such parties may not charge a consumer any fee to modify, renew, extend or amend a high-cost mortgage, or to defer any payment due under the terms of such mortgage.”)
  • Illinois High Risk Home Loan Act, 815 ILCS 137/90.5 (“Modification and deferral fees prohibited. A lender, successor in interest, assignee, or any agent of any of the foregoing may not charge a consumer any fee to modify, renew, extend, or amend a high risk home loan or to defer any payment due under the terms of the loan.”)