Topic: Loan Modifications
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If we modify a mortgage loan with escrow, is the 65% Illinois Mortgage Escrow Account Act notice requirement calculated based on the original loan amount, or the loan amount as of the modification?
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The 65% trigger is based on the original loan amount. The Illinois Mortgage Escrow Account Act requires lenders to notify borrowers when the “mortgage is reduced to 65% of its original amount by payments of the borrower . . . .” The fact that the loan has been modified will not change the trigger. For…
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Can we modify a matured loan? In some cases, a loan matures and then we perform a collateral review and pull credit and wish to modify the loan. Is that permissible?
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Yes, you may modify a matured loan (unless some provision in the loan agreement prevents you from modifying the loan’s terms). In addition, if you structure the loan modification documents correctly, it may fall outside of Regulation Z’s definition of a “refinancing,” eliminating the need to provide new loan disclosures. The Seventh Circuit has considered…
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We have a loan portfolio for performing and re-performing loans, including loans secured by first position liens on 1-4 dwelling units. When we utilize loan workout options for these loans (such as loan modification, short sale, and deed-in-lieu), are we required to send an appraisal notice and copies of appraisals under the Equal Credit Opportunity Act (ECOA) and Regulation B?
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The answer depends on the type of workout option, but we think that certain loan modifications are subject to Regulation B — while a short sale and deed-in-lieu are not. Regulation B’s appraisal notice requirements apply whenever you receive an application for an extension of credit secured by a first lien on a dwelling. Therefore,…
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If we extend a balloon loan that has not yet matured but change the payment terms (by changing the term from three years to one year), would that be considered a refinance or a renewal?
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Whether a subsequent transaction related to the same loan should be treated as a refinancing with new TILA and RESPA disclosures depends on the loan documents. The general rule is that a refinancing occurs only when an existing obligation is “satisfied and replaced by a new obligation undertaken by the same consumer” (under Regulation Z)…
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After we rejected a loan application, the applicant came to us with additional cash flow information. Should we treat this additional information as a new application, and how should we report this in our HMDA register?
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Your bank has the flexibility to determine whether it will categorize the applicant’s furnishing of additional cash flow information as a new application or as a continuation of a prior application. Both the Home Mortgage Disclosure Act (HMDA) regulations and the adverse action notice regulations under the Equal Credit Opportunity Act (ECOA) define an “application”…
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We had a question about the first payment due date for a loan. What is the maximum time frame we can set for a loan’s first payment? Can we wait sixty days after loan closing before the first payment is due?
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We are not aware of any Illinois laws that would govern the maximum time frame for a loan’s first payment. We would recommend checking your loan documents to ensure that you are disclosing that interest will start accruing during the first sixty days after loan closing, before the first loan payment is due. If you…