Topic: Mortgage Loans
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We have a customer who owns a five-unit apartment building and currently resides in one of the units. The customer is purchasing a new home to be their principal residence and will use the apartment building as collateral for the new home purchase. Does the right of rescission apply because the apartment building is the customer’s primary residence?
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Yes, we believe the right of rescission would apply in this case. Regulation Z generally provides a right to rescind a credit transaction when a consumer’s ownership interest in a principal dwelling will be subject to a security interest. There is an exception to this rule for a residential mortgage transaction where a security interest…
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What impact would Regulation O have on a bank officer mortgaging their land to secure a loan made to a customer who is a relative of the bank officer?
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We do not believe Regulation O’s prohibition on loans to insiders is applicable to an officer mortgaging property to secure a loan for a relative unless the proceeds of the loan will be transferred to the officer or used for the officer’s economic benefit. Here, the extension of credit is not being made to the…
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Can a customer put up their property as collateral on a loan for another customer, but not be on the loan itself?
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Yes, one person’s property may be used to secure another person’s loan. Moreover, we are not aware of any law requiring a non-borrower owner of the loan’s collateral to sign the loan agreement or promissory note. However, in the case of a loan secured by someone’s residence, you likely will want the non-borrowing homeowners to…
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If we establish an escrow account for a mortgage loan after the loan closing has occurred, do we need to provide an Illinois Mortgage Escrow Account Act notice, an escrow account disclosure agreement, and an election form establishing the customer’s decision to open either an escrow account or interest bearing time deposit? We ordinarily provide these documents when establishing escrow accounts at the loan closing.
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Yes, we recommend providing all three documents when establishing an escrow account for the first time, even if the loan closing already has occurred. The Illinois Mortgage Escrow Account Act notice is required at the closing of any mortgage loan made for the purpose of purchasing a single-family owner occupied residential property. Your bank should…
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Does the Residential Mortgage License Act (SB 2615), including the new advertising requirements, apply only to state licensed banks?
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No, the Residential Mortgage License Act of 1987, including these new advertising requirements, does not apply to banks. State-chartered institutions (as well as national banks) and their employees are exempt from all provisions of the Act. For resources related to our guidance, please see: Public Act…
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Regarding the Residential Mortgage License Act (SB 2615), is there any guidance for the inclusion of the NMLS consumer website in advertising?
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The Residential Mortgage License Act of 1987, including these new advertising requirements, does not apply to national banks. National banks (as well as state-chartered financial institutions) and their employees are exempt from all provisions of the Act. Consequently, your bank is not required to include the NMLS consumer website in advertising. If your bank chooses…
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Does the Illinois Mortgage Escrow Account act apply to escrow accounts set up to pay private mortgage insurance (PMI), or does it apply only to real estate tax escrow accounts?
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We believe that the Mortgage Escrow Account Act applies only to escrow accounts that hold funds for purposes of paying property taxes. If an escrow account holds funds only for purposes of paying PMI premiums, we do not believe that the Act would apply. But if an escrow account holds funds for purposes of paying…
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Are there specific record retention requirements that apply to original homeowner insurance policies, annual escrow analyses, and mortgage releases for residential mortgage loans? We currently retain electronic copies of these documents for seven years and shred the paper copies after one year. We keep original copies of notes. Is that an acceptable practice?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA. No, we are not aware of specific record retention requirements for original homeowner insurance…
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We are advertising mortgage loans in Illinois, but we are an FDIC-insured bank. Does the Residential Mortgage License Act apply?
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No, the Residential Mortgage License Act of 1987 does not apply to banks. Banks and their employees are exempt from all provisions of the Act, including its advertising requirements. For resources related to our guidance, please see: Illinois Residential Mortgage License Act of 1987, 205 ILCS 635/1-3(a) (“No provision of this Act shall apply to…
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If a borrower will be purchasing a dwelling for a family member, the family member will be the occupant but not the borrower, and the family member is not paying rent, would that be a consumer purpose loan?
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Yes, this loan would be treated as a consumer purpose loan under Regulation Z. A consumer purpose loan is one offered or extended “primarily for personal, family, or household purposes.” If a borrower is purchasing a home for a family member and will not be collecting rent, we would view the loan as extended for…