Topic: Escrow Accounts
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We understand that the Mortgage Escrow Account Act applies only to single-family, owner occupied residential properties. Does the law include any criteria to help determine when a residential property is “owner occupied”? For example, would a vacation home be covered by the Act?
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No, there are no provisions in the MEAA that outline the criteria for a property to be considered “owner occupied,” and we are not aware of any court cases that have clarified MEAA’s “owner occupied” requirement. In order to comply with MEAA, then, your bank will have to establish its own method to determine the…
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We send annual RESPA escrow account statements to our borrowers. Do the RESPA notices fulfill the Illinois Mortgage Escrow Account Act’s notice requirements in Section 15 (which requires more information than that included in the RESPA notice, such as a property’s PIN)?
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It depends. The annual escrow account statement required by RESPA by itself will not satisfy the Illinois Mortgage Escrow Account Act’s notice requirements, but it can if you add language to the notice stating that the bank’s contact information in the notice provides a means for accessing the dates and amounts of the borrower’s property…
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We are a state-chartered bank with one branch located in Wisconsin. We underwrite residential loans for community banks in Illinois and purchase and service the loans after closing. In most cases, the originating bank, borrower, and home are all located in Illinois. Occasionally the borrower is a Wisconsin resident purchasing a second home or investment property in Illinois. Do we “operate in Illinois” such that we are subject to the requirements of the Illinois Mortgage Escrow Account Act?
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In our view, it would be prudent to adhere to the law’s requirements for loans for which a borrower and/or the owner-occupied residential property securing the loan is located in Illinois. The MEAA — which imposes a number of notice and disclosure requirements regarding escrow accounts — applies to “each mortgage lender” that “grants or…
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Several customers who escrow their real estate taxes have prepaid them and now want a refund from their current escrow accounts. Can we impose a fee for analyzing whether a refund is required? If so, must we disclose the fee in writing? How quickly must we issue a refund after a borrower request?
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We are not aware of any prohibition against charging a fee for conducting an escrow analysis. However, your bank’s loan agreement with its borrowers must allow your bank to charge additional or unforeseen fees, such as for the analysis you have described. If the agreement does not contain language permitting such charges, then we recommend…
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Under the Illinois Mortgage Escrow Account Act, do we have to wait until a loan reaches 65% of the original balance before we can cancel an escrow account? We have a customer who has requested cancellation of their escrow account, although they have not yet paid down the balance to 65%, and we would like to accommodate this request.
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Yes, we believe that a bank may terminate an escrow account on the borrower’s request before the outstanding mortgage loan balance is reduced to 65% of the original loan amount, provided that an escrow account is not otherwise required. An escrow account may be otherwise required, for example, “in conjunction with mortgages insured, guaranteed, supplemented,…
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At a recent seminar, we were told that we were required to escrow for flood insurance starting January 1, 2016. As a “small lender” under the FDIC flood insurance rules, aren’t we exempt from that requirement? Before 2012, we never had a policy of regularly requiring escrow for any charges. However, now we require escrow for taxes and insurance for higher-priced mortgage loans (HPMLs). Do we lose our “small lender” exemption if we escrow for taxes and insurance for HPMLs, even if we are well under the asset threshold? Also, is an investment purpose loan secured by a 1-4 family residence exempt from escrow requirements?
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No, if your bank began escrowing for taxes and insurance after 2012, your bank will not lose its “small lender” exemption from the general requirement to escrow flood insurance premiums for residential mortgage loans that are made, increased, extended or renewed on or after January 1, 2016. A small lender is exempt from the flood…
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We have a large business customer (ABC Group) that would like to open non-interest bearing escrow accounts for its clients without giving us the clients’ W-9 forms. Can we do that? If so, should we use the customer’s tax identification number (TIN) to open the accounts and title the accounts as ABC Group, agent for John Doe Client? Can the customer sign one master signature card for all the escrow accounts?
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Yes, we believe you may open the escrow accounts without requiring the TIN of your customer’s clients. The Customer Identification Program (CIP) rules require the customer’s TIN. Through interagency guidance, the federal banking regulators have clarified that the person establishing the escrow account is the customer for CIP purposes. Consequently, we believe it is appropriate…
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If we are required to escrow for flood insurance premiums on residential mortgage loans under the interagency flood insurance rules, are we obligated to escrow for taxes and insurance on those loans? We understand that we are required to escrow for taxes and insurance for higher-priced mortgage loans.
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No, we do not believe that being required to escrow for flood insurance premiums under the flood insurance rules obligates a lender to escrow for other charges, such as taxes or insurance. In an interagency webinar on the flood insurance rules, the federal banking agencies clarified that a lender is not obligated to escrow for…
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Does the Mortgage Escrow Account Act (MEAA) apply to commercial loans or refinancings? Also, does it apply when we originate a loan with a loan-to-value ratio under 65%? For example, what if the property is worth $100,000, but we make the loan for $50,000 (a 50% loan-to-value ratio)?
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No, we do not believe that the MEAA applies to commercial loans or refinancings. The MEAA applies only when mortgage lenders extend a loan or service a loan made for the purpose of purchasing a “single-family owner occupied residential property.” Note, however, that the MEAA applies to loans within its scope regardless of their loan-to-value…
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We recently converted from a national bank to a state-chartered bank. The Illinois Mortgage Escrow Account Act requires lenders to notify borrowers that they may terminate an escrow account when the mortgage loan balance is reduced to 65% of its original amount. Do we have to send that notice for loans originated before our conversion to a state charter?
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The Illinois Mortgage Escrow Account Act (MEAA) 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 actually is reduced to 65% of its original amount by timely payments of the borrower (provided the borrower is otherwise not in…