Topic: High Risk and High-Cost Mortgage Loans
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Do we have to consider the rate ceiling for our HELOCs to determine whether they are considered “high-cost” mortgage loans under the new CFPB HOEPA rules? Our HELOCs have rates that vary according to an index, but the maximum interest rate on the loans is very high.
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For purposes of determining whether a loan sets off the interest rate trigger under the CFPB’s new HOEPA rules, we do not believe that you would have to consider a HELOC’s rate ceiling, provided that the HELOC’s interest rate “varies solely in accordance with an index.” To determine whether such a HELOC sets off the…
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Can we add a provision to our junior lien mortgage agreements that would allow us to recoup any third party fees that we paid at closing, in the event that the customer pays off the loan shortly after closing (i.e., within two or three years)?
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[Please note that this question was revised on August 5, 2015, to reflect a change made to Illinois law by Public Act 99-288.] Yes, you may recoup third party fees from customers who prepay loans, provided that recoupment is possible only within the first three years after the loan closing. Both federal and Illinois law…
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A loan officer is trying to help a customer refinance a loan with our bank. The customer originally had an interest-only loan with his parents. The customer is now the sole owner of the home. The customer’s current bank told us that the customer cannot refinance the loan because there’s a new law stating that the customer must own the home solely for at least a year before he can refinance the loan.
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We are not aware of any new laws imposing ownership requirements before a borrower can refinance a mortgage loan. Perhaps you can get more details from the customer, or ask the customer to ask the bank to be more specific. It is possible that the customer is referring to a requirement in the Illinois High…
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We are a national bank, and we were wondering whether certain Illinois laws apply to our bank — such as the Illinois High Risk Home Loan Act.
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Although it is likely that the Illinois High Risk Home Loan Act is partially preempted by federal law, we are not aware of any national banks that do not comply with the state requirements in order to avoid the necessity of using federal preemption as a defense in court. This is an unsettled and untested…
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If a high cost loan has a rate of 6.2% above APOR for a first lien mortgage, would it be considered a “high risk” loan in Illinois? What are the differences between the Illinois law and the federal regulations?
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We do not have a reference that covers every difference between the Illinois and federal laws, though our analysis below touches on some of those differences. Essentially, the laws have very similar definitions of what is considered a “high-cost” or “high risk” mortgage loan (except for the differing thresholds of 6.0% versus 6.5%), but there…
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Is a loan for the initial construction of a home is excluded from the Illinois High Risk Home Loan Act?
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We do not believe that an initial construction loan secured by a borrower’s primary residence would fit into the current High Risk Home Loan Act’s definition of a “high risk home loan.” 815 ILCS 137/10. Currently, that definition would include any “home equity loan,” meaning “any loan secured by the borrower’s primary residence where the…
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Is a tangible net benefit form required for all refinances?
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A “tangible benefit” test is required under the Illinois Fairness in Lending Act and under the Illinois High Risk Home Loan Act, though both laws have slightly different tests. The Illinois Fairness in Lending Act prohibits several lending practices, including “loan flipping.” 815 ILCS 120/3. The definition of “loan flipping” includes a tangible net benefit…
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Does the Illinois High Risk Home Loan Act cover HELOCs? And, if multiple interest rates could apply throughout the life of a HELOC, which rate should be used for purposes of determining whether a loan exceeds the APR thresholds in the Act?
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The Illinois High Risk Home Loan Act (the “Act”) presently excludes all “open-end credit plans” as defined by Regulation Z in the year 2000. 815 ILCS 137/10. That definition covers “consumer credit extended by a creditor under a plan in which: (i) The creditor reasonably contemplates repeated transactions; (ii) The creditor may impose a finance…
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Do we need to have borrowers sign the High Risk Home Loan Act waiver before the loan can close?
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The High Risk Home Loan Act does not expressly contain any timing requirements for either the certificate of completion or the waiver of participation in the Mortgage Awareness Program (except that the borrower must wait at least two business days after receiving the lender’s notice of the program before signing a waiver, 815 ILCS 137/110(h)).…
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Do you see any compliance problems with a short-term consumer loan secured by farm land?
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The loan you described may involve some risk of UDAAP or fair lending violations, but there are no specific federal or Illinois prohibitions of a consumer short-term balloon loan secured by real property that is not the consumer’s dwelling.[1] As you pointed out, Regulation Z’s restrictions on balloon loans would not apply to this loan,…