Topic: Mortgage Loans
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Is the “Illinois Addendum to Residential Mortgage Loan Application” form required for a Home Equity Line of Credit (HELOC)? This form asks a borrower to indicate whether they are in a registered civil union. Also, is the “Illinois Signed Documents Disclosure” form required for a HELOC? This form requires the borrower to acknowledge that “it is your responsibility to obtain copies before mailing signed documents back to the licensee” under 38 Ill. Adm. Code 1050.1150.
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No, a bank is not required to use either of these forms in connection with a HELOC, although your bank may find them useful for the reasons discussed below. The Illinois Addendum to Residential Mortgage Loan Application may be helpful for all residential real estate transactions, including HELOCs, in order to identify individuals who may…
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Is our bank required to complete a HMDA loan/application register (LAR) if we originated fewer than 25 closed-end mortgage loans and fewer than 500 open-end lines of credit in the preceding two calendar years? Will a spreadsheet documenting the number of closed-end mortgage loans and open-end lines of credit originated per month be sufficient to verify that we originated fewer than 25 closed-end mortgage loans and fewer than 500 open-end lines of credit in those years?
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Your bank is not required to complete and submit an LAR this year if it originated fewer than 25 closed-end mortgage loans and fewer than 500 open-end lines of credit in either of the two preceding calendar years. Your bank also would not be subject to HMDA’s reporting requirements if it does not meet the…
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We are making a second mortgage loan secured by the borrower’s second home. This will be a portfolio loan; we are not selling it on the secondary market. We do sell first lien mortgages secured by a second home to Fannie Mae, which requires us to use a second home rider (Form 3890). Are we required to use the Fannie Mae second home rider for this loan? Why is not required for second lien loans?
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No, we do not believe that your bank is required to use a Fannie/Freddie rider for a mortgage loan that will not be sold to Fannie Mae or Freddie Mac. The Fannie/Freddie Second Home Rider, Form 3890, is required for first lien loans secured by a second home that will be sold to Fannie Mae…
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Over a year ago, we made an installment loan contract on other real estate owned (OREO) property owned by our bank. The borrowers now are eligible to obtain a new residential loan with us and pay off the contract. The title to the property currently is in our bank’s name. We are selling the loan to Fannie Mae, which is treating it as a refinancing transaction. For purposes of the TRID disclosures, should we treat this as a refinancing or a purchase?
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We believe that your bank should identify the loan purpose on the TILA-RESPA Integrated Disclosure (TRID) forms as a refinancing. The TRID rules require lenders to identify one of four possible loan purposes in the Loan Estimate: (1) purchase, (2) refinance, (3) construction, or (4) home equity. A purchase loan is one made to finance the…
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When we file a mortgage or UCC financing statement to perfect a lien for an LLC that has established a series, what name should we use for the borrower? For a mortgage, we use the grantor’s name, which typically is the name of the series of the LLC (e.g., “ABC Properties, LLC; #2 Any Road” or “1234 North Street, Series of ABC Properties, LLC”). Should we enter the name of the LLC itself, or is it appropriate to use the name of the series?
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Subject to the discussion below, we believe that your bank may be able to perfect its security interests in property held by a series of an Illinois LLC by following your current practice, using the name of the series provided on the property title. Illinois law permits series LLCs to establish any number of “series,”…
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We are preparing a modification agreement for a first mortgage loan that extends the maturity date and increases the loan amount. Do we have any obligations to the junior lienholder?
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A senior lienholder generally is not required to obtain a junior lienholder’s consent when modifying the senior loan. However, a recent Illinois appellate case found as a matter of first impression that increasing the principal of the senior loan without such consent could prejudice the rights or impair the security of the junior lienholder, resulting…
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We have a first mortgage loan that we originated in 2013, so it was exempt from the escrow requirements for flood insurance that became effective in 2016. We now are planning to extend a home equity line of credit (HELOC) to the borrower secured by a second mortgage on the property. I know HELOCs are exempt from the escrow requirement for flood insurance, but since we are advancing new money to the same borrower, are we required to have the customer escrow funds for flood insurance for the first mortgage?
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No, we do not believe that extending a home equity line of credit secured by residential improved real estate will trigger the flood insurance escrow requirements for this borrower. In general, a lender must escrow flood insurance premiums for residential mortgage loans that are made, increased, extended or renewed on or after January 1, 2016.…
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We have consumer mortgage loans secured by balloon notes that will be converted to adjustable rate notes prior to maturity. Under Regulation Z, these transactions must be disclosed as refinances. Some of the borrowers have large second mortgages, and we are concerned that these transactions could result in the loss of our priority lien position. The amounts of the loans will not be increasing, and the original mortgages will not be released, but we will be entering into new notes with the borrowers. Under Illinois law, can we replace an original note with a new note without extinguishing the original mortgage lien? Must we record a new mortgage with a new note, or can we record a modification of mortgage instead?
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Yes, a lender may replace an original note with a new note without extinguishing the lender’s original lien — but the facts in each case and the language in the loan documents are crucial. Consequently, irrespective of our general guidance here, we recommend consulting with your bank counsel to determine how these refinancings can be…
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Where can I find the rules on when to send Servicemembers Civil Relief Act (SCRA) notices to consumers who are delinquent on their mortgages? Do we need to send an SCRA notice if our system indicates that the customer is not in the military? Do SCRA notices only need to be sent for consumer purpose loans or should they also be sent for business purpose loans? Also, where can we find the most up to date SCRA notice?
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The rules governing the SCRA notice requirements are found in the Homeownership Counseling Act provisions of the Housing and Urban Development Act of 1968, and we link to the relevant provisions in the resources below. We believe that your bank must send this notice to all eligible borrowers who become delinquent, even if your system…
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We have a customer who is buying residential property outside of Illinois. Regarding the written list of settlement service providers, can we use the same providers we normally disclose even though the customer cannot use those providers outside of Illinois? Do we need to research providers in the area where the property is located to add to the list?
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We believe you are required to provide the customer with a written list of service providers that includes at least one provider who performs each of the required settlement services where the consumer or property is located. Under Regulation Z, if a creditor allows a borrower to shop for certain settlement services that it requires,…