Topic: CFPB TILA-RESPA Integrated Disclosure (TRID) Rule
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We have consumer mortgage loans secured by balloon notes that will be converted to adjustable rate notes prior to maturity. Under Regulation Z, these transactions must be disclosed as refinances. Some of the borrowers have large second mortgages, and we are concerned that these transactions could result in the loss of our priority lien position. The amounts of the loans will not be increasing, and the original mortgages will not be released, but we will be entering into new notes with the borrowers. Under Illinois law, can we replace an original note with a new note without extinguishing the original mortgage lien? Must we record a new mortgage with a new note, or can we record a modification of mortgage instead?
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Yes, a lender may replace an original note with a new note without extinguishing the lender’s original lien — but the facts in each case and the language in the loan documents are crucial. Consequently, irrespective of our general guidance here, we recommend consulting with your bank counsel to determine how these refinancings can be…
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We have a customer who is buying residential property outside of Illinois. Regarding the written list of settlement service providers, can we use the same providers we normally disclose even though the customer cannot use those providers outside of Illinois? Do we need to research providers in the area where the property is located to add to the list?
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We believe you are required to provide the customer with a written list of service providers that includes at least one provider who performs each of the required settlement services where the consumer or property is located. Under Regulation Z, if a creditor allows a borrower to shop for certain settlement services that it requires,…
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We received an application for a mortgage loan refinancing. The applicant is the only person listed on the title to the property that will secure the loan, but her boyfriend also lives there. Does the boyfriend have a homestead right in the property? Also, should he be included on the Closing Disclosure and provided a notice of the right of rescission?
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No, the applicant’s boyfriend does not have a homestead right in the property, because he does not have an ownership interest in the property. The Illinois homestead exemption generally applies only to individuals with an ownership interest in their personal residence. Also, the applicant may waive her homestead rights without the boyfriend’s signature, since they…
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We have a five-year balloon mortgage loan secured by the borrower’s primary residence that has matured. Can we renew this loan, or does it need to be refinanced since the loan has matured?
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Yes, we believe that you may renew a balloon loan after its maturity date without it falling within Regulation Z’s definition of a “refinancing” (which would require new disclosures under the TRID requirements). However, the language that you use in the loan modification documents is important in order to achieve this result. The Seventh Circuit…
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When providing a written list of settlement service providers to the borrower of a residential loan, do we have to customize the list for each transaction or can we use a generic list for all transactions? For example, if our generic list indicates that a pest inspection is a service that the borrower can shop for and that it is required, but it is not required for a particular transaction, is that a violation? Also, if we list a surveyor in the provider list but do not disclose that service as a service the borrower can shop for in the Loan Estimate under “C. Services You Can Shop For,” is that a violation?
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We recommend against using a generic written list of service providers for all your residential loan transactions. Both examples you provide highlight the potential problems in using a generic list. In your first example, a generic written list of service providers would reference a service — pest inspection — that is not required for the…
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We made a residential mortgage loan to an unmarried woman, with her partner signing the mortgage only and not as an obligor on the note. Although the woman is the only party obligated on the note, the Closing Disclosure listed both her and her partner as “borrowers.” Does a non-borrowing co-mortgagor need to be listed as a borrower on the Closing Disclosure? If not, is this a problem? The loan already has closed.
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No, we do not believe that a non-borrower should be listed as a borrower on the Closing Disclosure; this would be a technical violation of the TRID requirements. Having said that, we are not aware of any provisions in the TRID rules for curing this type of technical violation when the loan already has closed.…
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We have a loan application for a second mortgage on the applicant’s personal residence to fund a business expansion. All funds will be used for the business. Does a right of rescission apply in this case? Should we use a Loan Estimate and Closing Disclosure?
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No, the right of rescission does not apply to a loan to expand a business, even if the loan is secured by the borrower’s residence, and you are not required to provide the borrower with a Loan Estimate or Closing Disclosure. An extension of credit primarily for a business purpose is entirely exempt from the…
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We originated a loan in October 2012 with a three-year balloon payment that recently matured. The loan is secured by an owner-occupied property. We modified the mortgage and note to extend the maturity date for three more years and increased the fixed interest rate. Our procedure is to automatically renew a loan if it is in good standing, and we do not require a new application. We charge a $75 fee to cover the recording costs for the modification and flood certificate. Does this modification trigger any TRID requirements?
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No, we do not believe a loan renewal with an increased fixed interest rate would trigger the TRID disclosures if the original debt is not canceled in connection with the renewal. However, the language that you use in the loan renewal documents must be carefully structured in order to achieve this result. TRID disclosures are…
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When we originate a residential construction loan, the loan is structured as an open-end line of credit, typically for a term of six to twelve months, with a fixed interest rate. The borrower makes monthly interest-only payments based on the drawn balance, with a balloon payment due at maturity. When the construction phase is complete, the borrower applies separately for permanent financing. Our loan origination system (LOS) generates our construction loan documents. On the closing disclosure for a construction loan, the field for “Monthly Principal & Interest” automatically fills “NO” in response to the question, “Can this amount increase after closing?” We are concerned this is inaccurate given that the monthly interest payment may vary based on the amount drawn on the loan, even though the interest rate is fixed. We are unable to change the answer to “YES.” Can you provide any insight or guidance on this matter?
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As a preliminary matter, you should confirm that your construction loans are “open-end” transactions under Regulation Z, as the TRID Closing Disclosure is not required for open-end transactions. The requirement to provide a borrower with a Closing Disclosure applies only to loans that are “closed-end consumer credit transaction[s] secured by real property or a cooperative…
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We have a closed-end loan that is close to its maturity date. If we renew the loan and treat it as a change in terms before the maturity date, rather than as a refinance, would that trigger the TRID requirements? Also, can we charge a flood certification fee and other, non-APR fees, such as a credit report, appraisal, and title examination fee?
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No, we believe that you may renew a loan without triggering the TRID requirements under Regulation Z — and this is the case whether the renewal is executed before or after the loan’s original maturity date. However, the language that you use in the loan renewal documents must be carefully structured in order to achieve…