Topic: Mortgage Loans
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We are preparing an internal valuation for a 1–4 family property for purposes of a mortgage loan. Our internal valuation is based on a prior appraisal of the property as well as price comparisons listed on a public real estate website. Are we required to provide a copy of this internal valuation to our customer, or would this type of valuation be exempt from this requirement?
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Yes, we believe you would be required to provide a copy of your internal valuation to your customer. Under Regulation B, a creditor must provide an applicant with “a copy of all appraisals and other written valuations developed in connection with and application for credit that is to be secured by a first lien on…
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Our title company has advised us that title to a mobile home securing a mortgage needs to be surrendered only if the loan will be sold on the secondary market, and that any loans we keep in-house are exempt from this requirement. Is that correct?
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No, if your security interest in a mobile (or manufactured) home will be perfected by a mortgage on the home, the owner must surrender the certificate of title (or Manufacturer’s Statement of Origin, if applicable) to the Illinois Secretary of State and comply with the other steps necessary for the home to be deemed real…
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We are considering implementing a process for borrowers to electronically sign mortgage loan documents. Freddie Mac requires us to obtain wet ink signatures on notes and mortgages, but we would like to have borrowers sign certain disclosures electronically. Do we need to send borrowers an Electronic Signatures in Global and National Commerce Act (E-Sign Act) disclosure and E-Sign policy?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA. Yes, we believe you should send borrowers an E-Sign Act disclosure before they execute disclosure…
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As interest rates have dropped, many customers have asked for the interest rates on their loans to be lowered. For residential real estate loans, can we lower the interest rate and subsequent payment amounts with just a modification agreement rather than using new loan documents? We do not believe these modifications would be considered “refinancing” under the TRID Rule since we are not replacing the existing note with a new obligation or adding a variable rate feature. Also, are there any state laws that would prohibit us from only using a modification agreement and not providing new disclosures?
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Yes, we believe you can lower the interest rate and subsequent payments for a loan with a modification agreement rather than using new loan documents. We are not aware of any state laws that would prohibit you from using a modification agreement or require you to provide new disclosures if the original loan agreement is…
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When is it necessary to have a customer sign a modification of mortgage? If the interest rate, maturity date or any other loan terms are changed, do we need to provide new disclosures and record a modification of mortgage?
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Depending on the changes being made, we believe it may be possible to modify the terms of a loan without recording a modification of mortgage, but we recommend engaging your bank’s counsel to review the relevant loan documents to ensure that your bank’s lien position will not be affected. Additionally, aside from the caveats noted…
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When a change in terms agreement for a real estate-secured loan only involves changing the note’s interest rate, are we required to record a new mortgage?
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No, we do not believe that you are required to record a new mortgage when modifying a loan’s interest rate. However, we recommend engaging your bank’s counsel to review the relevant loan documents and ensure that your bank’s lien position will not be affected. Illinois courts repeatedly have held that a note “given in renewal…
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We recently closed a mortgage loan secured by a property held in an Illinois land trust. The note, mortgage, and land trust riders were signed by both the borrower and the trustee of the land trust. Now the borrower has requested that we consent to a transfer of the property out of the land trust and into the borrower’s name so the borrower can close the land trust. If we authorize this transfer of title, could our loan and collateral position be jeopardized?
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Assuming the borrower is the beneficiary of the land trust, and the trustee of the land trust signs the transfer, we do not believe that your loan or collateral position would be jeopardized by a transfer of the property out of the land trust and into the borrower’s name, as the transfer would not change…
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Can we waive a bona fide third-party fee on a home equity loan (that is not a line of credit) and then recoup the fee if the borrower pays off the loan in thirty-six months or less? Is this something we would indicate in the note? We do not believe this would be a prepayment penalty. However, when Regulation Z states that “[a] creditor must not offer a consumer a covered transaction with a prepayment penalty unless the creditor also offers the consumer an alternative covered transaction without a prepayment penalty” — what does that mean? Would an alternative covered transaction be the same loan product with a higher price?
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We believe you may recoup bona fide third-party charges that were waived at consummation if the borrower repays the loan within thirty-six months — provided such terms are included in your note — and this recoupment would not be a prepayment penalty. Additionally, if you were to impose a prepayment penalty, we believe you would…
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We extended a loan to a borrower who purchased a home with the intention of making it his principal residence. He is unmarried and decided at the time of closing to add his girlfriend to the deed. She signed the mortgage but was not included on the Closing Disclosure (CD). Our loan documentation system included a signature line only for the borrower. Is this correct? Also, if a borrower refinances a loan secured by their primary residence without their spouse on the loan, would the spouse be required to sign the CD? This is assuming the spouse is listed on the deed and would be given a notice of the right of rescission and be required to sign a waiver of homestead rights.
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You were not required to provide a copy of the CD to the customer’s girlfriend or obtain her signature on the CD, since she is not entitled to rescind the purchase loan and therefore is not a “consumer” who must receive a copy of the CD. Regulation Z requires that a CD be provided to…
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How long should we retain commercial and real estate loan documents that have been scanned electronically? What about those that have not been scanned electronically? If we scan loan documents at the time the loan is originated, how long must we retain the paper copies?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA. We recommend retaining loan agreements for a period of ten years after the loan is…