Topic: Home Equity Line of Credit (HELOC)
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We want to raise the ceiling rate on our HELOCs and ARMs. Does Illinois have a maximum interest rate? We saw that the Interest Act appears to set a 9% maximum interest rate.
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The Illinois Interest Act’s general maximum interest rate of 9% does not apply to banks. Section 4 of the Interest Act generally sets a ceiling of 9% on interest rates, but this provision has many exceptions, including one for banks. The Illinois Banking Act permits banks to charge any “interest, fees, and other charges .…
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In the Illinois Interest Act, there are provisions that appear to prohibit us from charging fees for releasing a security interest for a home equity line of credit (HELOC), including recording fees charged by the county recorder. Do I understand that correctly? Or are we exempted under the Illinois Financial Services Development Act?
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We believe that Illinois law permits banks to charge HELOC lien release fees, including county recorder fees, provided that your customer has agreed to pay such fees. Section 4.1 of the Interest Act appears to prohibit lenders from charging borrowers for “expenses, including recording fees and otherwise” when releasing a mortgage lien. However, the Illinois…
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Our loan document system does not produce an appraisal notice for home equity lines of credit (HELOCs). Is that correct?
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Regulation B requires lenders to provide a notice of appraisal rights for credit applications secured by a first lien on a dwelling. The appraisal notice is not required for HELOCs secured by a second or junior lien. However, if a HELOC will be secured by a first lien on a dwelling (for example, when the…
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Can our Vice President and Senior Lender use a home equity line of credit (HELOC) extended by the bank to purchase stock in our bank?
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We are not aware of any Illinois or federal law or regulation that would prohibit a bank employee from using the proceeds of a home equity loan made by the bank to purchase the bank’s stock, provided that the transaction does not violate the insider lending limits in the Illinois Banking Act and Regulation O.…
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We have made several 12-month, interest only line of credit loans secured by 1-4 family residential properties. The money from these lines of credit was used to make significant renovations to existing, occupied properties. Would these loans be classified as “construction loans” or “lines of credit” on our Call Report?
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We believe that the Call Report classification for these loans depends on their purpose, which, based on the information you have provided, would be for construction. In general, a transaction secured by a 1 – 4 family residential property and structured as a line of credit should be included in Subitem 1.c(3) on a Call…
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Our bank offers a three-year, interest only home equity line of credit (HELOC) with a balloon feature, and a ten-year HELOC with a monthly payment of 1% of the balance and a balloon feature. Can we modify these loans to extend their maturity date another three or ten years and add an amortization schedule? Or would that be considered a refinancing? Does it matter if the modification occurs before or after maturity?
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We believe that you may modify the HELOCS in the way that you described before or after maturity without treating the changes as a “refinancing.” However, the language that you use in the loan modification documents will determine whether you achieve this result. The Seventh Circuit has considered a similar issue, albeit in the context…
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A father and son co-signed on a HELOC two months ago. The father signed a right of rescission (ROR) notice but we failed to provide one to the son. We plan to send the son an ROR notice now. Is his rescission period three business days or three years?
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In our view, the son’s right of rescission now extends for three years. Under Regulation Z, if “the required notice and material disclosures are not delivered,” the borrower gets a three-year rescission period. Neither the rule nor its official interpretations identify a specific time for delivering notice of the right to rescind. However, the rule…
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Under Illinois law, is the grace period on a home equity line of credit (HELOC) 10 or 15 days before we can impose a late fee?
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Illinois law does not impose a specific “grace period” on revolving credit plans (such as HELOCs). The Illinois Financial Services Development Act authorizes financial institutions to establish grace periods, late fees, and other terms and conditions in their plan agreements with their borrowers. For resources related to our guidance, please see: Illinois Financial Services Development…
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We have a customer who would like a home equity line of credit (HELOC). His wife is not on the title for the house and she will not be a co-signor on the HELOC. Do we need to include her as grantor on the mortgage? Or is it sufficient to have her sign a waiver of her homestead rights?
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The wife does not need to sign the mortgage, since she is not a borrower and is not on the title to the property securing the HELOC, but she should sign a waiver of her homestead exemption rights. Note that a waiver of homestead exemption rights is not valid unless it is signed by both…
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We have an application for a home equity line of credit (HELOC) from a longstanding customer, whose debt-to-income (DTI) ratio exceeds 40%. We are willing to make the loan, but we want the customer to use the loan proceeds to pay off and close a credit card account to improve his DTI ratio after closing. Can we add a provision to the loan agreement requiring the customer to pay off and close the credit card account? Also, would this answer apply to other types of consumer-purpose loans?
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Yes, we believe you may add a provision to your HELOC agreement that requires the customer to pay off and close a credit card account (we do recommend consulting bank counsel when drafting this change to your agreement). The same answer would apply equally to other types of consumer-purpose loans (including our recommendation to consult…