Topic: Mortgage Loans
-
We are an Illinois-chartered savings bank, and we are considering offering a loan modification program for owner-occupied, single-family residential properties that would allow a borrower to pay a fee to lower the interest rate on the remaining loan balance. The borrower would execute a modification agreement on the original note, and the loan would be kept in our portfolio. Are there any compliance concerns related to this program, and would any additional regulatory paperwork be required?
—
by
We believe your proposed modification program would be permissible and, aside from the caveats noted below, would not require additional disclosures — but the documentation for the modifications must demonstrate that the existing loans are not being satisfied or released. It is possible to lower the interest rate on a mortgage loan and charge a…
-
We originated a residential mortgage loan at some point after 1994 and before January 1, 2016 (we don’t know the exact date). At the time the loan was made, we established an escrow account for real estate taxes, homeowner’s insurance, and flood insurance, but we do not know whether we required this escrow account or the borrower voluntarily decided to establish the escrow account. The borrower has now asked to terminate the escrow account so that they can pay these items directly. Can we terminate the flood insurance escrow, since the loan was originated before mandatory flood escrows were required? We do not qualify for the small lender exception, and the loan has not been extended, renewed or increased since it was originated.
—
by
Yes, we believe you may terminate the flood insurance escrow for a loan that was originated before January 1, 2016, provided that you have not made, increased, extended or renewed the loan since it was originated (i.e., no “M.I.R.E.” events have occurred). You are correct that flood insurance escrows are mandatory for the duration of…
-
We have an affiliate that will begin selling insurance products to our bank customers. We have changed our privacy notice to allow customers to opt-out of affiliate sharing. For mortgage loans, we will provide loan customers with the new privacy notice at the time of application. How soon may our insurance affiliate begin marketing to new our new mortgage loan customers? Does twenty days constitute a “reasonable opportunity” to opt out?
—
by
In general, we recommend that your institution should wait thirty days after providing the opt-out notice before sharing information about your customers with your insurance affiliate for marketing purposes; your bank arguably could start sharing customer information after just twenty days, as discussed below, but this would be at the risk of having to prove…
-
For a residential mortgage loan, are we required to provide a non-borrowing, non-title holding spouse with a copy of the Closing Disclosure three days prior to closing? In this case, the spouse has signed the mortgage for the purpose of waiving their homestead rights.
—
by
No, you are not required to provide a Closing Disclosure to an individual who is not a borrower and who has no ownership interest in the property securing the mortgage loan. Regulation Z requires that a Closing Disclosure be provided to a “consumer,” which is defined as a person to whom credit is offered or…
-
We received a notice from AllRegs that Illinois has amended the notice of foreclosure requirements. What changes have been made?
—
by
The Illinois legislature recently amended the notice of foreclosure requirements in the Illinois Mortgage Foreclosure Law to ease the penalties for failure to comply with certain notice requirements applicable only in Chicago. For foreclosure complaints related to properties located in Chicago (“a city with a population of more than 2,000,000”), the plaintiff must send a…
-
We recently discovered that our home equity line of credit (HELOC) and junior lien residential mortgage loan agreements prohibit us from charging a lien release fee when releasing the mortgage. However, our first lien residential mortgage loan agreements permit us to charge a lien release fee. Is there an Illinois law that allows release fees to be charged for first lien residential mortgages but prohibits such fees for HELOCs or other junior lien mortgage loans?
—
by
We believe that Illinois law permits banks to charge lien release fees for HELOCs and junior lien residential mortgage loans, provided that your customers have agreed to pay such fees in your loan agreement. In this case, your bank’s HELOC and junior lien residential mortgage loan agreements prohibit such fees, and the agreements’ restrictive language…
-
A customer with a fixed-rate residential mortgage loan would like to modify the loan to lower the fixed interest rate and shorten the loan term, which would result in a higher monthly payment. Can we make these changes through a modification, and are any new disclosures or a new right of rescission notice required?
—
by
Yes, we believe you may modify the terms of the existing loan to decrease the interest rate and shorten the loan term without falling within Regulation Z’s definition of a “refinancing” (which would require new disclosures under the TRID requirements). Also, the right of rescission does not apply to the modification of an existing dwelling-secured…
-
We are launching a new website and want to publish our mortgage rates on it. What is the required disclosure language that rates are subject to change based on credit score, loan-to-value ratio, etc.?
—
by
We are not aware of specific language that must be used when disclosing that advertised mortgage rates are subject to change based on factors such as a credit score and loan-to-value ratio, and Regulation Z does not include any sample or model language for such a disclosure. As a reference, the resources below include two…
-
For loans that are secured by savings accounts or certificates of deposit held in joint tenancy, can only one of the joint owners sign the security agreement or must all joint owners sign? If the signature of all owners is not required, does the bank need to send a certified letter to the other owners to notify them of the security interest?
—
by
Generally, the Illinois Supreme Court has held that a joint deposit account is subject to the provisions of the contract between the bank and its depositors, and one joint depositor may unilaterally pledge the interests of an entire joint account if allowed by the account agreement. Whether all joint depositors must be notified of such…