Topic: Mortgage Loans
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We have a loan application for a second mortgage on the applicant’s personal residence to fund a business expansion. All funds will be used for the business. Does a right of rescission apply in this case? Should we use a Loan Estimate and Closing Disclosure?
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No, the right of rescission does not apply to a loan to expand a business, even if the loan is secured by the borrower’s residence, and you are not required to provide the borrower with a Loan Estimate or Closing Disclosure. An extension of credit primarily for a business purpose is entirely exempt from the…
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Under the Illinois Mortgage Escrow Account Act, does a “residence” include only the borrower’s principal residence, or would a non-owner occupied, 1–4 family investment property also be included? Also, it appears that the property tax notice required in Section 15 of the Act requires inclusion of only one of the four items listed (PIN, mortgage acct number, address of subject property, OR other property description). Is that correct?
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The Illinois Mortgage Escrow Account Act (MEAA) applies only to mortgage loans secured by owner-occupied, single-family residential real estate, when made “for the purpose of enabling another to purchase a residence.” Consequently, it would not apply to a purchase loan for non-owner occupied investment property, although it could apply to a borrower’s second residence. We…
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We are extending a first and second mortgage loan on the same property on the same day. Is it a best practice to obtain a separate flood determination for each loan file? The drawback to this approach would be paying for two flood determinations.
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No, we believe that obtaining one flood determination on the property for both loans will be sufficient. The flood insurance regulations require lenders to obtain a flood determination whenever a building (or mobile home) will be collateral securing a loan. A lender may rely on a previous flood determination when a new loan is secured…
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What notices are required to be mailed out to mortgage borrowers when they become 45 days past due?
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Under federal law, your bank must provide the HUD housing counseling and SCRA counseling notices within 45 days after an eligible borrower becomes delinquent. Additionally, if your bank does not qualify as a “small servicer” (an institution that, together with its affiliates, services 5,000 or fewer mortgage loans as of January 1st of the current…
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We have a borrower with two commercial loans secured by first liens on residential rental property. When the borrower fell behind on her payments last year, we allowed her to make interest-only payments for one month and then resume making the regular principal and interest payments. The arrangement was documented with a letter signed by the borrower. The borrower recently fell behind again, and we are contemplating allowing her to make interest-only payments for three months, after which she will resume making full principal and interest payments. We also would document this arrangement with a letter signed by the borrower. Are there any regulatory implications with respect to modifying a loan repayment in this fashion?
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We are not aware of any significant regulatory implications with this transaction, although your bank may be required to provide a copy of an appraisal or other written valuation if one was prepared in connection with the customer’s request for temporarily modifying the loan repayment terms (which we understand is not the case here). Resources…
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We are a HMDA reporting bank. We had a corporate customer borrow money to purchase a 1–4 unit family dwelling. The loan is secured by the dwelling and the customer’s business assets. The credit decision was based on both the value of the dwelling and the business assets. For HMDA reporting purposes, would the property value include both the value of the dwelling and the business assets or just the value of the dwelling? For the combined loan to value ratio, should the loan amount be divided by the combined value of the collateral or just the value of the dwelling?
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For HMDA reporting purposes, the reported value of the property securing the covered loan includes only real property. Regulation C itself requires reporting “the value of the property securing the loan,” but it does not specify whether the value of the property to be reported is restricted to real property. Regulation C is implementing a…
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Our new loan origination system creates a new resolution for each note. Because each note has its own resolution, the LOS told us that a Members’ Certificate of Incumbency is unnecessary for loans made to LLCs. Is that correct?
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Yes, we believe that an appropriate corporate resolution could serve to protect your bank in the same manner as a Certificate of Incumbency, provided that the resolution is drafted to include all of the same protections as the form previously used by your bank. Generally, a corporate resolution used in connection with a loan should…
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When we originate a residential construction loan, the loan is structured as an open-end line of credit, typically for a term of six to twelve months, with a fixed interest rate. The borrower makes monthly interest-only payments based on the drawn balance, with a balloon payment due at maturity. When the construction phase is complete, the borrower applies separately for permanent financing. Our loan origination system (LOS) generates our construction loan documents. On the closing disclosure for a construction loan, the field for “Monthly Principal & Interest” automatically fills “NO” in response to the question, “Can this amount increase after closing?” We are concerned this is inaccurate given that the monthly interest payment may vary based on the amount drawn on the loan, even though the interest rate is fixed. We are unable to change the answer to “YES.” Can you provide any insight or guidance on this matter?
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As a preliminary matter, you should confirm that your construction loans are “open-end” transactions under Regulation Z, as the TRID Closing Disclosure is not required for open-end transactions. The requirement to provide a borrower with a Closing Disclosure applies only to loans that are “closed-end consumer credit transaction[s] secured by real property or a cooperative…
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Our mortgage document provider is going to start including a document called the “Illinois Waiver of Participation in Mortgage Awareness Program.” The document indicates that the customer was provided written notice of their legal right to participate in a counseling and education program through the IDFPR called the “Mortgage Awareness Program,” and that they are waiving their right to participate in the program. I found a few references to the document on the IDFPR website, but one indicated that the form has been repealed. Do we need to use this form and notify a customer of their right to participate in the program?
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We believe the waiver of participation for the Mortgage Awareness Program is necessary only for “high risk home loans” as defined in the Illinois High Risk Home Loan Act (HRHLA). Under the HRHLA, the Illinois Department of Financial and Professional Regulation (IDFPR) is required to provide the Mortgage Awareness Program — a counseling and education…
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We have a borrower who filed a Chapter 13 bankruptcy petition. The borrower is current on their mortgage loan, and the notice we received indicates that they will maintain the current contractual installment payments due under the loan. As a large servicer, are we still required to send the modified periodic statement for borrowers in bankruptcy, even though our debt is unaffected by the filing? There is no delinquency information to be reported, but the modified statement would contain the important bankruptcy message.
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Yes, we believe your bank must send the modified periodic statements for residential mortgage loans required under Regulation Z for borrowers in bankruptcy, unless certain exemptions apply. Generally, mortgage loan servicers (including creditors and assignees) subject to the large servicer rules are required to send modified periodic statements to debtors in bankruptcy for closed-end consumer…