Topic: Mortgage Loans
-
We are extending a second mortgage secured by a property that is located in a flood plain. The first mortgagee did not require flood insurance because the borrower had obtained an elevation certificate for the property, but the borrower did not obtain a letter of map amendment (LOMA). Isn’t a LOMA necessary for the property to be exempted from the flood insurance requirement? Also, if flooding should occur, would we receive insurance proceeds as the only mortgagee named in the policy, or would the proceeds go to the first lienholder?
—
by
Yes, you are correct that if a property is in a FEMA-designated special flood hazard area (SFHA), a borrower must obtain a letter of map amendment (LOMA) for the property to be exempted from the flood insurance requirement. An elevation certificate may be necessary to support an application for a LOMA, but the certificate alone…
-
We are refinancing a closed-end purchase and home improvement loan, secured by the borrower’s principal dwelling. Does the right of rescission apply?
—
by
No, a right of rescission does not apply to a refinancing by the original creditor for a closed-end loan already secured by the borrower’s principal dwelling — provided that no new money is advanced. However, if new money is advanced, the right of rescission applies to any amount exceeding the original loan’s unpaid principal balance,…
-
When a farmland commercial loan is partially secured by second mortgage on a residence out of an abundance of caution, are we required to obtain title insurance for the residence? We have a loan secured by hundreds of acres of farmland, crops, vehicles, farm equipment, and an assignment of leases and rents, as well as a second mortgage on a residence and additional land surrounding the residence. We obtained title insurance covering the farmland, but not the residence and surrounding land. Should we have obtained title insurance covering the residence and surrounding land?
—
by
We are not aware of a requirement to obtain title insurance covering real estate securing a loan when the lien is obtained out of an abundance of caution. Of course, title insurance is strongly recommended for real estate-secured loans, but we do not believe that title insurance is required for real estate that is taken…
-
After a HELOC has matured, can we extend the customer a temporary closed-end loan for a period of twelve months or less, and then modify the temporary loan into a longer-term balloon loan (typically for a term of 3–5 years), thus avoiding the requirement of an ability-to-repay (ATR) analysis?
—
by
While it may be possible to avoid Regulation Z’s ability-to-repay (ATR) requirements when making an initial temporary (“bridge”) loan and subsequently modifying it with a term longer than twelve months, we recommend proceeding with caution. The modification of the bridge loan into a balloon loan must be structured carefully to not be considered a “refinancing,”…
-
I have a HMDA reporting question for loans that are denied for non-income related reasons. Our HMDA software is producing quality and validity edits when we enter “NA” for fields that were not considered in issuing the denial. For example, if we deny an application due to the applicant’s credit score, we enter “NA” in the fields for income, property value, LTV, DTI, etc. What should the entry be for data not considered in issuing the denial?
—
by
Our understanding is that all of the HMDA data fields mentioned in your question may be reported as “NA” because they are not considered in making a credit decision. Your software vendor may be able to shed more light on the significance of the quality and validity edits — it may be the case that…
-
I have a HMDA question on reporting a credit score of “NA.” When I use the code “7777” and use the agency that provides the score (such as Transunion), I receive a Quality Edit Error. How should we be coding these credit scores?
—
by
According to the CFPB’s filing instructions guide, “8888” is the entry that should be used when the credit score is not applicable (NA). The “7777” entry is intended for a credit score that is not a number. For resources related to our guidance, please see: CFPB, Filing Instructions Guide for HMDA Data Collected in 2018,…
-
Does Illinois require interest to accrue on customers’ mortgage escrow accounts?
—
by
Illinois law does not require interest to accrue on mortgage escrow accounts, but an Illinois law requires a bank to allow certain customers to open an interest-bearing time deposit account in lieu of an escrow account. For purchase-money loans secured by owner-occupied single-family homes, the Illinois Mortgage Escrow Account Act requires mortgage lenders to provide…
-
I discovered a consumer-purpose loan that originally was structured as a commercial loan. The purpose of the loan was to construct a primary residence for two individual borrowers, but the members of an LLC also signed the note. What is our potential liability? Is there anything we can do to cure our violations?
—
by
Your bank could be subject to potentially significant liability due to its failure to provide the required disclosures under the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA). For example, your bank could be liable for up to twice the amount of the total finance charge for the loan, or a…
-
We would like to run a promotion for residential real estate loans where the bank would pay a credit towards the appraisal fee. Are there any potential issues with the promotion or RESPA concerns?
—
by
Provided that this promotion is open to all customers, we do not see any issues under the Real Estate Settlement Procedures Act (RESPA) prohibition against kickbacks for referrals of settlement services. Providing incentives to borrowers to do business with your bank would not implicate any RESPA concerns. For resources related to our guidance, please see:…
-
We made a residential mortgage loan to an unmarried woman, with her partner signing the mortgage only and not as an obligor on the note. Although the woman is the only party obligated on the note, the Closing Disclosure listed both her and her partner as “borrowers.” Does a non-borrowing co-mortgagor need to be listed as a borrower on the Closing Disclosure? If not, is this a problem? The loan already has closed.
—
by
No, we do not believe that a non-borrower should be listed as a borrower on the Closing Disclosure; this would be a technical violation of the TRID requirements. Having said that, we are not aware of any provisions in the TRID rules for curing this type of technical violation when the loan already has closed.…