Topic: Home Equity Line of Credit (HELOC)
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Does Illinois law permit $15 fees for late payments on a Home Equity Line of Credit (HELOC)? What about for a closed-end home equity loan?
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A $15 late fee on a HELOC payment is permitted in Illinois. The Illinois Financial Services Development Act authorizes late fees on revolving credit plans (such as HELOCs) without any specific limit. Financial institutions may set the fee amount in their plan agreements with their borrowers. Regarding closed-end home equity loans, the Illinois Banking Act…
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We have a home equity line of credit (HELOC) that was taken out jointly by a married couple. The couple is separated (not yet divorced), and the wife would like to refinance the HELOC. The husband is not on the deed to the house securing the HELOC. Does the husband need to sign the mortgage, right of rescission notice, Truth in Lending disclosures, or the homestead waiver? Is Illinois a community property state?
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No, Illinois is not a community property state. In this case, because the husband is not the borrower and is not on the title to the property securing the HELOC, we believe that his signature is required only regarding any waiver of his homestead rights. However, we do recommend checking with the secondary market purchaser…
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A customer applied jointly for a HELOC with a co-signer, and we pulled both co-signers’ individual credit reports. However, after underwriting the loan, we found that the co-signer’s credit caused the loan to be rejected. If the customer reapplies for a HELOC individually, can we reuse her credit report, which we first pulled in connection with the joint application?
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Yes, the Fair Credit Reporting Act (FCRA) permits a lender to reuse a credit report for the purpose of reviewing a subsequent credit application (which is a “permissible purpose” under the FCRA). Before reusing the report, however, you should check your bank’s underwriting policies and procedures, which should indicate when a credit report is too…
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Will vacant lot loans be covered by the updated Military Lending Act rules that become effective on October 3, 2016?
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Yes, the amended Military Lending Act rules will cover a consumer-purpose loan secured by a vacant lot, unless the loan purpose is to finance the initial construction of a dwelling on the vacant lot. In general, the amended Military Lending Act rules cover all consumer-purpose loans, with several specific exemptions, including an exemption for residential…
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May a customer use online banking to transfer from a HELOC or line of credit to the customer’s checking account?
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Yes, your bank may choose to permit customers to transfer line of credit or home equity line of credit (HELOC) disbursements into their checking or other deposit accounts using online banking. We are not aware of any Illinois or federal law that would prohibit or restrict this practice. However, we note that this practice can…
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Do you know of any Illinois Banking Act provision that would limit the loan amount (i.e., $5,000) for a Home Equity Line of Credit?
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There is no such limitation in the Illinois Banking Act. You may be thinking of the Illinois Interest Act, which prohibits a lender from taking a security interest in real property for a revolving line unless the line of credit is in excess of $5,000. However, the Illinois Financial Services Development Act exempts any…
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Does the Illinois Financial Services Development Act require us to provide a thirty day notice before increasing the rate on a HELOC? We adjust HELOC rates monthly and notify borrowers of the rate change on the periodic statement before the change.
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No, we do not believe that thirty days advance notice is required before rate changes resulting from the interest calculation disclosed under a HELOC’s account agreement. The Illinois Financial Services Development Act requires thirty days advance notice before amending a HELOC agreement. That provision would not apply in this case because the agreement is not…
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Can we add a provision to our consumer residential loan agreements imposing a default interest rate? Currently, only our HELOC loan agreements provide for default interest rates, which are triggered when the loan is being terminated or accelerated. If a HELOC borrower becomes delinquent or pays late, can we impose the default interest rate, even if the loan is not being terminated or accelerated?
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Yes, we believe you may add a default interest rate provision to your consumer residential loan agreements, but they may be subject to court scrutiny if they are not considered “reasonable.” Illinois courts have examined loan agreements with default interest rates and generally have found that “reasonable” rate increases after default are permissible. For example,…
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Our new mortgage document provider is prompting us to provide the Borrower Information Document under the rules for the Residential Mortgage License Act of 1987 (38 Ill. Adm. Code 1050.1110) for HELOC borrowers. Is that required? A lot of the information required in this document seems inapplicable to HELOCs.
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No, you are not required to provide the Borrower Information Document required by the Illinois Residential Mortgage License Act of 1987. That law does not apply to financial institutions. It exempts “any bank . . . savings bank, or credit union.” However, if your institution has subsidiaries or affiliates that are not banks, they are…
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We pay two employees commissions for the mortgage products that they sell. If we pay commissions for sales of closed-end mortgages, are we also required to pay the same commission for sales of home equity lines of credit (HELOCs)? Would the commission structures have to be identical?
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We do not recommend compensating sales of HELOCs differently than sales of closed-end mortgage loans, due to Regulation Z’s prohibition on compensating a loan originator “based on a term of a transaction.” Regulation Z’s restrictions on loan originator compensation do not apply to HELOCs, but they do apply to closed-end mortgage loans secured by a…