Topic: Home Equity Line of Credit (HELOC)
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With respect to Illinois law, please offer any insights into granting borrowers’ requests to skip monthly payments on adjustable rate mortgages (ARMs) with thirty-year terms or monthly interest payments on home equity lines of credit (HELOCs). For the ARMs, the skipped payments would be added to the end of the scheduled loan payments, and for the HELOCs, the skipped interest-only payments would be spread over a few months to avoid the borrower being hit with one large interest payment.
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Illinois law does not expressly address mutually agreed-upon skipped payments — whether offered by the bank as a “skip-a-payment” program or when requested by the borrower. However, such arrangements are permissible in Illinois. It is important that your “skip-a-payment” agreement does not have the effect of canceling the original loan and substituting it for a…
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Our loan department would like to send letters to customers with first mortgages with our bank encouraging them to apply for a HELOC. Will these letters require an “Equal Housing Lender” symbol or language?
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Yes, the Fair Housing Act requires that any advertisement for a loan secured by a dwelling must include a statement that the lender is an “Equal Housing Lender.” Consequently, the “Equal Housing Lender” logo should be included in your loan department’s HELOC letters. For resources related to our guidance, please see: OCC Fair Housing Regulations,…
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We recently discovered that our home equity line of credit (HELOC) and junior lien residential mortgage loan agreements prohibit us from charging a lien release fee when releasing the mortgage. However, our first lien residential mortgage loan agreements permit us to charge a lien release fee. Is there an Illinois law that allows release fees to be charged for first lien residential mortgages but prohibits such fees for HELOCs or other junior lien mortgage loans?
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We believe that Illinois law permits banks to charge lien release fees for HELOCs and junior lien residential mortgage loans, provided that your customers have agreed to pay such fees in your loan agreement. In this case, your bank’s HELOC and junior lien residential mortgage loan agreements prohibit such fees, and the agreements’ restrictive language…
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A director of our national bank and their friend are purchasing a property. The director is paying cash for their portion of the purchase and the friend is paying their portion using funds from their home equity line of credit (HELOC) with our bank. Must the draw on the HELOC be applied to the director’s total borrowings from our bank, since the property is for the benefit of both the director and the friend? Is the shared use of the property a tangible economic benefit?
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We are not aware of any precedent or guidance indicating whether a loan to a director’s co-purchaser for the acquisition of a shared property would be considered to be providing a tangible economic benefit to the director. We contacted the OCC with this question (without identifying the type of bank asking the question), and an…
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We have a customer with a home equity line of credit (HELOC) at our bank who believes that there has been fraudulent activity on his account. The customer said that a fraudulent check was drawn on the HELOC and paid to another bank. Do we have a permissible purpose to pull this customer’s credit report — without obtaining his permission — to determine if there has been any fraud on the account? Can we pull the credit report if the customer does grant permission?
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Yes, we believe you have a permissible purpose under the Fair Credit Reporting Act (FCRA) to pull the customer’s credit report without his permission in this situation. You also may pull a credit report with the customer’s written permission. The FCRA permits a bank to obtain an individual’s credit report in limited circumstances, including for…
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Our bank received a Chapter 7 bankruptcy notice for a customer who has a home equity line of credit (HELOC) with our bank. We are in a second lien position and want to know what our current position is with respect to the first lien. We also are considering freezing the line due to the borrower’s bankruptcy. Do we have a permissible purpose to pull the customer’s credit report?
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Yes, we believe that your bank has a permissible purpose under the Fair Credit Reporting Act (FCRA) to pull the borrower’s credit report in this situation. The FCRA permits a bank to obtain an individual’s credit report in limited circumstances, including for purposes of a “review” of a consumer’s loan account. The Federal Trade Commission…
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Our bank received a Chapter 7 bankruptcy notice for a customer who has a home equity line of credit (HELOC) with our bank. Can we decrease the available amount on the line, without terminating it, so that the customer may no longer access the funds? If so, what notification, if any, do we need to provide to the customer? Also, would we need to send an adverse action notice to the borrower, or does the bankruptcy prevent us from doing so?
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Yes, we believe that your bank may reduce a HELOC’s line of credit after receiving a Chapter 7 bankruptcy notice, subject to the notice requirements discussed below. Regulation Z generally prohibits creditors from reducing or freezing a HELOC’s credit limit unless an exception applies. One exception permits the reduction or freezing of a line of…
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Is the “Illinois Addendum to Residential Mortgage Loan Application” form required for a Home Equity Line of Credit (HELOC)? This form asks a borrower to indicate whether they are in a registered civil union. Also, is the “Illinois Signed Documents Disclosure” form required for a HELOC? This form requires the borrower to acknowledge that “it is your responsibility to obtain copies before mailing signed documents back to the licensee” under 38 Ill. Adm. Code 1050.1150.
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No, a bank is not required to use either of these forms in connection with a HELOC, although your bank may find them useful for the reasons discussed below. The Illinois Addendum to Residential Mortgage Loan Application may be helpful for all residential real estate transactions, including HELOCs, in order to identify individuals who may…
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We received a bulletin from our core provider explaining that some state regulations require that payments made to a HELOC account must be applied in a certain order, and that there is now a way to choose the order in which items post when HELOC payments are made. Are there any state of Illinois requirements for the posting order on payments to HELOCs and if so, what is the required order?
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We are not aware of any Illinois law or regulation requiring HELOC payments to be applied in a certain order, although we strongly recommend following the order provided in your loan documents, if any. Note, however, that in the context of check posting, this is a very controversial issue. In some states, checks must be…
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We have a first mortgage loan that we originated in 2013, so it was exempt from the escrow requirements for flood insurance that became effective in 2016. We now are planning to extend a home equity line of credit (HELOC) to the borrower secured by a second mortgage on the property. I know HELOCs are exempt from the escrow requirement for flood insurance, but since we are advancing new money to the same borrower, are we required to have the customer escrow funds for flood insurance for the first mortgage?
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No, we do not believe that extending a home equity line of credit secured by residential improved real estate will trigger the flood insurance escrow requirements for this borrower. In general, a lender must escrow flood insurance premiums for residential mortgage loans that are made, increased, extended or renewed on or after January 1, 2016.…