Topic: Loan Documentation
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We made a loan secured by rental property to an individual. The rental property did not have any outstanding liens when we made the loan. The loan purpose was to purchase another rental property. We issued a Loan Estimate and Closing Disclosure for the loan, even though Regulation Z did not apply due to the loan’s business purpose. On review, I saw that the Loan Estimate listed the loan purpose as “Home Equity Loan,” but the Closing Disclosure listed the loan purpose of “Refinance.” What was the correct loan purpose?
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We recommend placing a memorandum in the loan file to document that the Loan Estimate and Closing Disclosure were issued in error, as the loan was made for a business purpose and was not subject to the CFPB’s loan disclosure rules. The memorandum should also note that these loan documents misstated the loan purpose as…
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A customer came to us with an outstanding federal student loan. Our loan department refinanced his student loan, but structured it as a commercial loan product (with the terms and conditions of a commercial loan). The refinancing was made to him and his wife as co-borrowers, and the proceeds were used to pay off his original federal student loan. Were the Higher Education Opportunity Act (HEOA) disclosures required? What if we had made the refinancing to the customer’s business, with him and his wife as individual guarantors? Would that transaction have been subject to HEOA disclosures?
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We do not believe that the Higher Education Opportunity Act (HEOA) disclosures were required in this case, because the loan did not fit the definition of a “private education loan.” The HEOA disclosures are required only for “private education loans,” which are loans made to a consumer for post-secondary educational expenses (in addition to having…
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We have a commercial customer that has an outstanding student loan with us. The customer would like to refinance this loan, with the new borrowers being a husband and wife, as individuals. The loan proceeds will be paid to the commercial customer to pay off the existing loan. Is this considered a commercial loan, or are the Higher Education Opportunity Act disclosures required? What if we make the new loan to the business with the husband and wife as guarantors?
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We do not believe that the Higher Education Opportunity Act (HEOA) disclosures are required in this case, because this loan does not fit the definition of a “private education loan.” The HEOA disclosures are required only for “private education loans,” which are loans made to a consumer for post-secondary educational expenses (in addition to having…
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We are a national bank with one location in Illinois. We recently were purchased by an out-of-state bank holding company. We are told that the other state’s law establishes a usury limit of 10%. The holding company is concerned about our document preparation fee for small-dollar, short-term loans, which can cause these loans’ APRs to exceed the other state’s 10% cap. Are these loans subject to the other state’s interest rate cap?
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First, we should note that we are not experts on the other state’s law, and we cannot opine as to whether its restrictions on interest rates would apply to document preparation fees. Having said that, we do not believe that your bank’s document preparation fees are subject to the other state’s interest rate limit. As…
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When we extend our in-house balloon mortgage loans, we reevaluate the property. The evaluations usually consist of driving by the property and concluding either that the property value is consistent with our original appraisal or that it has deteriorated. We document the evaluations and retain the documentation in our loan files. Are we required to provide a copy of these evaluations to the applicants and obtain their signatures of receipt?
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Yes, we believe that your bank should provide copies of these evaluations to applicants requesting renewals of loans secured by a first lien on a dwelling. While the applicants’ signatures are not required, obtaining their signatures would be a prudent step for documenting your compliance with this requirement. Regulation B requires creditors to provide applicants…
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We have a residential mortgage employee whose job title is “loan specialist.” He is not an officer of our bank, but he has registered with the Nationwide Mortgage Licensing System (NMLS) and obtained an NMLS registry number. Can he sign Fannie Mae Uniform Residential Loan Applications (URLAs) as a mortgage loan originator? Or does he need to have the title of “loan officer” or any other qualifications or credentials?
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Yes, we believe that your employee may sign Fannie Mae ULRAs as a mortgage loan originator. You stated that the employee has registered with the NMLS and has obtained an NMLS registry number. By taking those steps, your employee has satisfied the requirements of federal SAFE Act to act as a residential mortgage loan originator.…
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Do we have to disclose an owner’s title insurance premium on the Loan Estimate, even if we have a copy of the purchase agreement and it states that the seller will pay the premium? If we do need to disclose it, can we include a “Seller Credit” in Section H (Other) with a negative amount to offset the owner’s policy premium? Also, should we disclose the premium amount with or without the “simultaneous issuance” discount?
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Yes, we believe that you should include the owner’s title insurance premium on the Loan Estimate. Regulation Z requires the Loan Estimate to include the owner’s optional title insurance charges under “Other” (assuming that your bank does not require the borrower to purchase owner’s title insurance). It also is appropriate to list the owner’s title…
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Are we required to provide a notice of the right to choose a title insurance company to applicants for dwelling-secured home equity lines of credit (HELOCs)? Depending on the HELOC amount, a borrower will be required to pay for a title search, a limited title insurance policy, or a full title insurance policy.
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We recommend providing a notice of the right to choose a title insurance company to all HELOC applicants who will be required to pay for title insurance, as defined in the Title Insurance Act. Under the Title Insurance Act, when a borrower is required to pay for title insurance for a loan secured by the…
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We do not require borrowers to purchase owner’s title insurance. On our Loan Estimates, we disclose the owner’s title insurance premium under the heading for “Other.” Because this is paid by the seller, we also list it as a “Seller Credit” in the “Calculating Cash to Close” section. However, on the borrower’s Closing Disclosure, we do not include the owner’s title insurance premium; we include it only when providing a separate Closing Disclosure to the seller. Is that correct?
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We believe that you should include the owner’s title insurance premium on the borrower’s Closing Disclosure. Regulation Z requires the Closing Disclosure to include optional title insurance charges, even if they are paid by the seller, under “Other,” in the “Seller-Paid” column. We believe that your bank is correctly disclosing the owner’s title insurance premium…
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We originate loans brokered by third party originators (TPOs) and also serve as a broker to other institutions. We only work with other banks. We require them to complete a loan brokerage agreement and disclosure statement. Does Illinois law require this form or any other forms?
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No, we do not believe that banks must use the loan brokerage agreement and disclosure statement required by the Residential Mortgage License Act of 1987 (RMLA) in a brokerage relationship with another bank. The RMLA requires licensed mortgage brokers to provide a loan brokerage disclosure statement and obtain a signed loan brokerage agreement before a…