Topic: Mortgage Loans
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We are processing a commercial adjustable-rate mortgage (ARM) loan in our LaserPro system. The loan is to two individuals to purchase an investment property. The system is giving us a critical warning that states “this loan contains a deep discount feature. Please adjust the periodic interest rate cap to avoid creating a deep discount feature.” Is there an Illinois rule concerning deep discounts when it comes to ARM loans?
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We are not aware of any federal or Illinois law prohibiting “deep discount features” for commercial ARM loans. We recommend reaching out to LaserPro for an explanation of the error. The Illinois Banking Act permits banks to charge any “interest, fees, and other charges . . . subject only to the provisions of [subsection 4(1)]…
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We believe that creditors must request the six pieces of information constituting an application under Regulation Z in their online mortgage loan applications. However, our loan originators and vendors claim that it is a common practice for online applications to omit property address for purchases and property value for refinancings. Is this practice allowed by Regulation Z?
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We do not believe that creditors are required to collect the six items of information that make up an application all at once or in a single online form, as a creditor may collect the six items in the order that best suits its needs. Consequently, we believe that the practice of omitting certain data…
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Is Illinois considered a “dry” closing state or a “wet” closing state for mortgage loan transactions? Would it be illegal for a bank to be involved in a dry closing in Illinois?
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Based on our research, Illinois generally is considered a wet closing state, but we are not aware of any law or regulation prohibiting dry closings in Illinois. However, dry closings may be rare in this state due to title companies’ reluctance to insure such transactions. In a wet closing state (also referred to as a…
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Can we email the required notice that must be sent under the Mortgage Escrow Account Act when a loan reaches 65% of the original loan balance and the borrower is entitled to terminate their escrow account? If the notice must be mailed, can it be included as a separate document with another mailing or periodic statement?
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Yes, when a borrower’s loan reaches 65% of their original loan balance and you have a valid email address on file, we believe you may use email to notify them of their right to terminate their escrow account. As a best practice, we recommend obtaining the borrower’s consent to receive electronic mail before sending any…
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It appears that national banks are exempt from the Illinois Mortgage Escrow Account Act. If, as a national bank, we did not comply with the law’s disclosure requirement at origination, then switched our charter and now are subject to the law, must we comply with the law’s notification requirement when a loan reaches 65% of its original balance, or are loans we originated while still a national bank exempt from this provision?
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We believe your bank must comply with the Illinois Mortgage Escrow Account Act’s second notice requirement when a loan reaches 65% of its original balance, regardless of whether the loan was originated before your bank converted its charter. The Illinois Mortgage Escrow Account Act requires two notices to be delivered to customers at two different…
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If we make or service a loan secured by a property outside Illinois, would we be required to comply with the Mortgage Escrow Account Act, or is doing so simply a best practice? Our loan origination software is set up to recognize state-specific laws and provide related disclosures, so it typically does not generate Illinois disclosures for loans secured by out-of-state property. Does it matter if we originate the loan then sell it on the secondary market and do not retain servicing?
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We believe that if you are a mortgage lender operating in Illinois, you would be required to comply with the Mortgage Escrow Account Act in originating or servicing mortgage loans secured by single-family, owner-occupied, residential properties located outside of Illinois. The Mortgage Escrow Account Act defines “mortgage lender” to include any bank or savings bank…
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We retain servicing for loans sold to Fannie Mae, and Fannie Mae’s Servicing Guide states that a “servicer must not solicit” a borrower with an offer to waive the escrow account requirements. Is this guidance preempted by the Mortgage Escrow Account Act’s requirement to notify a borrower of their right to terminate their escrow account when the balance of their mortgage loan reaches 65% of the original loan balance? We are aware that the Mortgage Escrow Account Act excludes certain mortgages insured or guaranteed by the federal government that require an escrow arrangement.
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We believe that single-family, owner occupied, residential mortgage loans owned by Fannie Mae would be subject to the Mortgage Escrow Account Act’s requirement to notify borrowers of their right to terminate their escrow account when the balance of their mortgage loan reaches 65% of the original loan balance. Although the Act provides an exception to…
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In answer to a previous question, you indicated that an escrow account holding funds for purposes of paying both property taxes and insurance premiums would be subject to the Mortgage Escrow Account Act. We understand that we must provide the initial disclosure required under the law at closing if taxes are paid from the escrow account. However, when the loan reaches 65% of the original loan balance and we must provide notification of the option to cancel the escrow account, would this apply only to the tax portion of the escrow or are we required to provide the option to cancel the insurance portion of the escrow — including HOI and PMI premiums but excluding flood insurance?
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We believe that the notice of a borrower’s right to terminate their escrow account under the Mortgage Escrow Account Act would apply to only the tax portion of their escrow account. The Mortgage Escrow Account Act defines “escrow account” as “any account established by the mortgage lender in conjunction with a mortgage loan on a…
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Is there an established definition of the Mortgage Escrow Account Act’s reference to payments “timely made according to the provisions of the loan agreement”? If a borrower with a history of delinquency is current on their loan when the loan reaches 65% of the original loan balance, must we notify them of their right to terminate their escrow account? Must we provide notice even if an exclusionary factor prohibits the borrower from exercising this option (such as the loan being in default)? If an exclusionary factor exists when the principal balance reaches 65% of the original loan balance, must we monitor the loan until the exclusionary factor no longer exists and then provide the notification?
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We are not aware of any definition or guidance related to the phrase “payments of the borrower, timely made according to the provisions of the loan agreement secured by the mortgage.” The Mortgage Escrow Account Act does not define the phrase, and it appears in only one court case that we know of, which does…
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How should we disclose the Illinois Department of Revenue’s Rental Housing Support Program surcharge, which county recorders collect with each mortgage recording? Is the surcharge exempt from the finance charge calculation, and should it be disclosed in the “Taxes and Other Government Fees” section of the Loan Estimate (LE) and Closing Disclosure (CD)?
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We believe that the Rental Housing Support Program surcharge is exempt from the finance charge calculation and should be disclosed in the “Taxes and Other Government Fees” section of the LE and CD. Regulation Z provides that taxes and fees prescribed by law that actually are or will be paid to public officials for perfecting…