Topic: Mortgage Loans
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We qualify as a small servicer under Regulation Z. Are we required to provide monthly statements for all residential mortgage loans, or only for those that have escrow accounts? If monthly statements are required, can customers choose to not receive a monthly statement, or to receive an electronic statement only?
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We do not believe you are required to provide monthly statements for residential mortgage loans since you qualify as a small servicer under Regulation Z. Regulation Z contains an express exemption from the requirement to send periodic statements for residential mortgage loans when such loans are serviced by a small servicer — regardless of whether…
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Does Illinois have a maximum default interest rate that we can charge on our loans? We have an out-of-state division that is subject to a maximum default interest rate.
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No, we do not believe that Illinois law imposes a maximum default interest rate that can be charged on loans. However, if your loan agreements have set a maximum default interest rate, your bank should not charge more than the contracted-for default interest rate. There are very few limitations on interest rates charged by banks…
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Freddie Mac Guide Bulletin 2021-16 states that effective for mortgages with settlement dates on or after August 5, 2021, “Prorated tax credits cannot be considered when determining if the Borrower has sufficient funds for the Mortgage transaction.” Does this mean we cannot take these tax credits into account? If that is the case, we will have some borrowers who are unable to qualify for loans, as the amount due at closing reflected on the LE is higher than what the borrower will actually need.
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Yes, both Fannie and Freddie now prohibit lenders from considering prorated real estate tax credits when determining the funds required for a mortgage transaction. These prohibitions apply only to mortgages that will be sold to Freddie Mac or Fannie Mae or that are otherwise subject to their selling standards. Freddie Mac’s updated Single-Family Seller/Servicer Guide…
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We are considering opening a loan production office in a different state. Do we need to follow the laws of that state for any loans generated from that location, or can we continue to follow Illinois law since all origination activity will take place in Illinois? Does the answer change if we decide to open a branch rather than a loan production office? Are there any resources available to help us understand our responsibilities as we look to move to other states?
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While we cannot address all possible scenarios in fifty different states, we believe that an Illinois court would find that Illinois law applies to your loans if you include a provision specifying that Illinois law will govern the contract (i.e., a choice of law provision) and there is some relationship between Illinois and the parties…
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Is a non-borrowing spouse required to sign a Closing Disclosure (CD) on a refinance if the spouse has an ownership interest in the property securing the mortgage loan? I know we must give the spouse a copy of the CD, but I cannot find anything that states we must have them or the borrower sign the bottom. Additionally, our notice of right to cancel states that the customer has the right to cancel within three business days of the latest of three events. One of these events is “[t]he date you receive the Truth in Lending Disclosures.” Is this referencing the loan estimate (LE) or CD?
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We do not believe that the non-borrowing spouse would be required to sign a CD regardless of the circumstances of the transaction, as signatures on CDs are optional under Regulation Z. However, note that Fannie Mae and Freddie Mac recommend obtaining the borrowing spouse’s signature as a “best practice,” and some private secondary market investors…
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Are we allowed pay a referral fee for referrals of consumer loans that are not secured by real estate?
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We are not aware of any prohibitions on paying referral fees related to unsecured consumer loans. The Real Estate Settlement Procedures Act of 1974 (RESPA) prohibits kickbacks for referrals of real estate settlement services for “federally related mortgage loans,” which are defined as first or subordinate liens on residential real property designed for the occupancy…
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A prospective loan customer has agreed to purchase a group of properties, and we obtained an appraisal for the properties that is 15% below the purchase price. The seller will not lower the price, and the prospective loan customer would like us to obtain a different appraisal. Can we order a new appraisal through a different company, or would that violate a regulation? We have been advised that we will need to terminate our relationship with the current appraiser if we proceed with obtaining a second appraisal.
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If the first appraisal passed your bank’s appraisal review process, we do not believe it would be appropriate to obtain a second appraisal simply because your customer requested it. The federal banking agencies’ Interagency Appraisal and Evaluation Guidelines require financial institutions to establish policies for documenting the review of appraisal and evaluations. If you decide…
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Are we allowed to pay a referral fee to past mortgage customers who refer new mortgage customers, or would this be a RESPA violation? If this practice is acceptable, should we have the new mortgage customer sign a statement permitting us to inform the referring customer of their loan so we can pay the referral fee and avoid any privacy concerns?
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We believe RESPA prohibits you from paying referral fees related to consumer mortgage loans, but we are not aware of any prohibitions on paying referral fees related to commercial mortgage loans. RESPA prohibits kickbacks for referrals of real estate settlement services related to consumer mortgage loans. This prohibition does not apply to commercial loans (credit…
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What state statute covers a bank’s release of a mortgage that has been paid off?
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The Illinois Mortgage Act establishes the requirements for mortgages that have been paid off, and the Mortgage Certificate of Release Act imposes additional requirements specific to mortgages on 1–4 family residential properties securing loans under $500,000. The Illinois Mortgage Act requires that mortgagees take one of three alternative actions within thirty days after “full satisfaction…