Topic: Mortgage Loans
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We are a national bank, and we offer escrow accounts to mortgage loan customers who request them. Are we required to provide the Mortgage Escrow Account Act disclosure at closing for refinance transactions on owner-occupied residential real estate, or is it required only for purchase money transactions?
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The Illinois Mortgage Escrow Account Act 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, we do not believe that the law would apply to a refinance transaction, since it would not be made for the purpose of purchasing…
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We have a request to add money to a balloon mortgage loan balance to pay for roof repairs. If the payment amount and interest rate remain the same, can we add to the loan balance without structuring the transaction as a refinancing?
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We believe that you may modify this loan without treating the transaction as a refinancing, and whether your bank chooses to structure this transaction as a modification or as a refinancing is a business decision. If your bank wishes to structure this transaction as a modification (which would not require new set of Regulation Z…
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We have a closed-end loan that is close to its maturity date. If we renew the loan and treat it as a change in terms before the maturity date, rather than as a refinance, would that trigger the TRID requirements? Also, can we charge a flood certification fee and other, non-APR fees, such as a credit report, appraisal, and title examination fee?
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No, we believe that you may renew a loan without triggering the TRID requirements under Regulation Z — and this is the case whether the renewal is executed before or after the loan’s original maturity date. However, the language that you use in the loan renewal documents must be carefully structured in order to achieve…
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We originated a home equity line of credit (HELOC) for the property owner. The borrower’s wife signed only the homestead waiver portion of the mortgage, since she does not hold title to the home securing the HELOC. Our loan software produced a right of rescission form for the husband but not for the wife. Shouldn’t the wife sign a right of rescission form as well?
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No, the wife is not entitled to the right of rescission because she is not an owner of the property securing the HELOC. The right of rescission applies only to persons with an ownership interest in the mortgaged property, and it does not apply to those with “leaseholds or inchoate rights, such as dower.” While…
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Does the National Bank Act preempt the Illinois law that requires banks to allow customers to terminate their escrow accounts once a loan is paid down to 65% of the original loan amount? We are a national bank.
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In our view, the National Bank Act preempts state laws relating to escrow accounts for both residential and nonresidential loans for national banks. At the same time, we believe that some national banks in Illinois do comply with the Illinois law relating to the termination of escrow accounts when a loan is paid down to…
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In the next few years we may have some escrow accounts for loans in which the mortgage amount will be reduced to 65% of its original amount. Are we required to provide a notice? Are there model disclosures or verbiage available?
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Yes, the Illinois Mortgage Escrow Account Act (MEAA) requires two notices to be delivered to customers at two different times — one notice at the loan’s closing, and a second notice when the mortgage actually is reduced to 65% of its original amount by timely payments of the borrower (provided the borrower is otherwise not…
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Can our bank charge a fee to extend or modify the construction period of a consumer-purpose construction loan?
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Yes, we believe you may charge this fee if the customer agrees to it as part of the extension or modification agreement. We are not aware of any law that would prohibit a bank from charging an extension or modification fee agreed to by the customer, particularly in connection with a mortgage loan. Section 5e…
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We originate our first lien mortgage loans through a subsidiary. Can we require those borrowers to open a checking account with us?
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Yes, we believe that your bank can require borrowers to open a deposit account at your bank — provided that the requirement is applied consistently to avoid any fair lending implications. There is no prohibition against tying a loan product offered through a subsidiary to a deposit account product at your bank. Illinois and federal…
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A man obtained a residential mortgage with our bank. His wife is not on the title to the home, and she is not obligated on the note. From what we understand, the couple is now separated but not yet divorced, and the wife occupies the residence alone. The husband has stopped making the mortgage payments. Can our bank treat the wife as a successor-in-interest on the mortgage and send her information about the loan so that she might take over the payments? We are a small servicer.
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No, we do not believe that your bank should treat the wife as a successor-in-interest to the note or mortgage. Generally, a person becomes a successor-in-interest when an ownership interest in mortgaged property is transferred in one of the ways enumerated in Regulation X, such as a transfer of ownership through a divorce decree or…
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We are making a loan secured by a house, a detached garage, and a detached three-walled outbuilding used to shelter animals and store hay, all of which are located on a horse farm. The house is being rented out by the owners. How should we classify each building in terms of determining the maximum flood insurance available? Are these residential or non-residential buildings?
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In our view, the house is a residential building subject to the $250,000 flood insurance coverage limit. The detached garage may be exempt from flood insurance coverage, and the three-walled outbuilding may be a non-residential building, subject to the discussion below. The flood insurance rules and guidances distinguish between residential and non-residential buildings when determining…