Topic: Mortgage Loans
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We have a producing manager on our mortgage team. Can we pay them a commission based on the loan volume that their team produces, as well as a commission based on the loan volume they individually produce?
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Yes, we believe that your bank may compensate loan originators based on their individual loan volume and their team members’ loan volume. Regulation Z prohibits loan originator compensation that is based on the terms of the transactions that they originate. But this prohibition does not apply to compensation based on an individual loan originator’s loan…
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We would like to waive our upfront costs for HELOC borrowers. However, some borrowers use the account as a short-term bridge loan and pay the loan off when their home sells, usually in the first year of the loan. Would we violate the Illinois Interest Act if we charge those waived costs on payoff of these loans?
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No, we do not believe you would be violating the Illinois Interest Act if you charge HELOC borrowers for waived, upfront costs on an early payoff, if agreed to in the loan agreement, but such charges could implicate the restrictions on prepayment penalties under Regulation Z and the Illinois High Risk Home Loan Act for…
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If a mortgage loan borrower intends to rent their property out but also will live there for more than fourteen days, would the loan be considered “consumer credit” for TRID purposes since it does not qualify as non-owner-occupied rental property?
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We do not believe that a loan automatically is considered consumer credit under Regulation Z if the borrower intends to rent out the property but also live there for more than fourteen days in the coming year. The official commentary to Regulation Z establishes a special rule for non-owner-occupied rental property, providing that “[c]redit extended…
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We received a loan application from a customer who previously defaulted on a car loan extended by our bank, twelve years ago. We had to repossess the car and obtain a deficiency judgment. The customer refused to pay the judgment, and we were able to collect it only after the customer later sold real property. Now the customer has clean credit, but based on the prior repossession and collection action, we plan to reject his loan application. Will this decision create any fair lending issues?
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No, we do not believe that rejecting a loan application for legitimate business reasons should create any fair lending issues, provided that your bank complies with its adverse action requirements. Regulation B allows a creditor to consider “any information obtained” in connection with an application for credit, provided that the information is not used to…
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We have a mortgage loan borrower that is delinquent in paying their real estate taxes for a consumer loan secured by their principal dwelling. We want to make a protective advance to pay off the delinquent taxes, which will involve increasing the principal balance of the mortgage loan and re-amortizing it. Are there any timing or disclosure requirements that apply? Are we limited to just the current delinquent amount? Does the borrower have a right of rescission in this scenario?
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We are not aware of any law or regulation expressly addressing when and how a mortgage lender may advance funds to protect their interest in collateral. Accordingly, we believe whether you may make such an advance (and any related procedures) will depend on the terms of your agreement with the borrower. For example, Fannie Mae’s…
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Is the Illinois Addendum to Residential Mortgages a required document? This document asks the borrower whether they are a party to a civil union and whether any other parties may claim any interest in the property that will secure repayment of the loan. Is it required if the application is for joint credit and both borrowers are married and applying together? What about a married person applying for individual credit?
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An Illinois Addendum to Residential Mortgages is not required by Illinois law, but we believe using such a form is helpful for identifying individuals who may have relevant property rights and interests because they are a member of a civil union. Also, it is possible that secondary market purchasers may require this form as a…
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Our bank operates a mortgage company that purchases loans after they have closed through the correspondent lending channel. The loans close in the name of a third-party originator (TPO) after an underwriter at our mortgage company reviews the loan file and issues underwriting conditions to the TPO. If we deny a loan application, should our mortgage company issue an adverse action notice and list our regulator or should the TPO issue the notice and list its regulator? If our mortgage company issues the adverse action notice, should we reference the TPO on the notice?
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We believe that either your mortgage company or the TPO can issue the adverse action notice, and the notice should disclose each creditor involved in the adverse action decision. Regulation B provides that when a loan application is made on behalf of an applicant to more than one creditor and no credit is offered (or…
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Are financial institutions required to wire funds to settlement agents for real estate loan closings? We have had instances where we have had to wire funds from one account at our bank to another account at our bank. Is there an amount limit? Would we be exempt as a national bank?
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No, we do not believe financial institutions are required to wire funds to settlement agents for closings. Although the use of cashier’s checks generally is limited to disbursements of less than $50,000, Illinois law does allow options other than wired funds for disbursements of $50,000 or more at real estate closings (including cashier’s checks in…
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We made a commercial construction loan that converted to a closed-end mortgage loan with a balloon payment. The loan was for the construction of a condo unit that the developer initially intended to sell or rent out for income. After origination, the developer decided to move into the property as their primary residence. The loan is now reaching maturity. Can we extend the maturity date without triggering the requirement to provide TRID disclosures?
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We believe you may modify the mortgage loan to extend the maturity date without providing disclosures under the TILA-RESPA Integrated Disclosure (TRID) rule, provided that you do not satisfy and replace the existing mortgage loan with a new transaction. Under Regulation Z, if a business purpose loan is later rewritten for consumer purposes, “[s]uch a…
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Our bank generally does not require consumers to set up an escrow account for a residential mortgage loan unless required by law. We have agreed to terminate an escrow account at the request of a borrower who voluntarily escrows funds for real estate taxes. Are we required to pay the escrow balance to the borrower after terminating the account? The borrower mentioned that they need the funds for a vacation, and we are concerned they will not be able to pay their property tax bill due next month. If the borrower is delinquent in paying their tax bill, our loan terms give us the right to require that an escrow account be reinstated.
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We recommend reviewing your loan terms and any escrow account agreement the borrower may have signed. If your agreement does not expressly grant your bank the right to retain the escrow account balance after the escrow is terminated, we recommend refunding the balance — as your failure to do so may be deemed an unfair,…