Topic: Loan Documentation
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Are we still required to provide a Civil Union and Same-Sex Marriage Addendum to our Uniform Residential Loan Applications? The Addendum notifies a borrower that we may require their partner or spouse to sign the security instrument and other documentation that secures the repayment of the loan.
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No, you are not required to provide the Civil Union and Same-Sex Marriage Addendum to your Uniform Residential Loan Applications. However, using this addendum may be helpful in residential real estate transactions to identify individuals who may have relevant property rights and interests (such as the homestead rights of an individual who has entered into…
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Would the Taxpayer First Act (Act) require us to obtain a taxpayer’s express permission to share their tax return information if we obtain this information directly from the taxpayer — as opposed to obtaining it from the IRS? Also, would providing taxpayer information to an examiner or an auditor for the sole purpose of reviewing or auditing a loan file constitute “sharing” under the Act?
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No, we do not believe that the Act’s consent requirement applies to tax return information provided by a taxpayer — it applies only to tax return information provided by the IRS. However, a customer’s tax return information remains subject to financial privacy laws, which may require the customer’s consent before disclosure to a third party,…
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Would the Taxpayer First Act (Act) require us to obtain a taxpayer’s express permission to share their tax return information if we obtain this information directly from the taxpayer and did not obtain it from the IRS?
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No, we do not believe that the Act’s consent requirement applies to tax return information provided by a taxpayer — it applies only to tax return information provided by the IRS. However, note that a customer’s tax return information remains subject financial privacy laws, which may require the customer’s consent before disclosure to a third…
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Under the new Taxpayer First Act, is it necessary to obtain a taxpayer’s consent to share their tax return information with third parties in connection with a business purpose loan? We do not sell business purpose loans or their servicing. However, we pledge business purpose loans to the Federal Home Loan Bank (FHLB) and the Federal Reserve, and our external loan reviews include reviewing tax information. Would obtaining a taxpayer’s consent be necessary for these types of activities? What risks would a bank face for not implementing a taxpayer consent form in connection with these types of loans?
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Yes, the taxpayer consent provisions of the Taxpayer First Act (Act) apply to business taxpayers. We recommend obtaining consent from a business before sharing tax return information obtained from the IRS with third parties, such as an external loan reviewer or even an FHLB or Federal Reserve Bank. The Act amended the Internal Revenue Code…
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We are looking for guidance on how to title a mortgage loan when a living trust is involved. For example, if Jen Test is the trustee of the Jen Test Revocable Living Trust dated 1/1/18 and the mortgaged property is held in the trust, how should this be reflected in the mortgage and deed? What if the property is not held in the trust, but the trust is a borrower on the loan? Also, our LaserPro documentation system requires that we input the names of any natural person beneficiaries of trust borrowers when a loan is made for personal, family, or household purpose. Would this apply to both living trusts and land trusts?
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The mortgagor described in the mortgage should be the party that holds title to the property. If the property is held in a living trust, the mortgagor would be listed in the name of the trust (e.g., “Jen Test Revocable Living Trust dated 1/1/18”), and the trustee would sign the mortgage on behalf of the…
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Our commercial loan department has opted to provide adverse action notices to customers who withdraw their applications even though it is not required under Regulation B. The reason given for the denial in such notices is “file withdrawn,” regardless of whether a credit decision had been made at the time of the withdrawal. Is this appropriate? For our internal recordkeeping and training purposes, we use a loan documentation worksheet that includes certain fields relevant to HMDA reporting which distinguish between an application that is withdrawn prior to a credit decision and an application that is “approved, not accepted.”
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We believe your bank may continue to provide voluntary adverse action notices with the notation “file withdrawn” to applicants whose loan applications are withdrawn at any point during the credit decision process. You are correct that Regulation B does not require a lender to send an adverse action notice when an application is withdrawn, regardless…
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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 are making a second mortgage loan secured by the borrower’s second home. This will be a portfolio loan; we are not selling it on the secondary market. We do sell first lien mortgages secured by a second home to Fannie Mae, which requires us to use a second home rider (Form 3890). Are we required to use the Fannie Mae second home rider for this loan? Why is not required for second lien loans?
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No, we do not believe that your bank is required to use a Fannie/Freddie rider for a mortgage loan that will not be sold to Fannie Mae or Freddie Mac. The Fannie/Freddie Second Home Rider, Form 3890, is required for first lien loans secured by a second home that will be sold to Fannie Mae…
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We have a policy that a customer’s credit report is valid for six months, so we do not pull a new report or charge the customer if they apply for an additional loan within that six-month period. Is it permissible to provide this benefit to returning customers when new customers applying for loans are charged for a credit report? Also, is it permissible for us to allow a loan officer to choose not to charge a new customer for a credit report for various reasons?
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Yes, we believe it is permissible to reuse a credit report, allowing a returning customer to avoid the fee for a new report within the six-month timeframe set by your bank’s policy. The FCRA permits a lender to reuse a credit report for the purpose of reviewing a subsequent credit application (which is a “permissible…
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Our new loan origination system creates a new resolution for each note. Because each note has its own resolution, the LOS told us that a Members’ Certificate of Incumbency is unnecessary for loans made to LLCs. Is that correct?
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Yes, we believe that an appropriate corporate resolution could serve to protect your bank in the same manner as a Certificate of Incumbency, provided that the resolution is drafted to include all of the same protections as the form previously used by your bank. Generally, a corporate resolution used in connection with a loan should…