Topic: Mortgage Loans
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When preparing a Loan Estimate, what is the best practice for disclosing the estimated property tax and escrow information for a purchase loan? Should we call the county for the most recent assessment, or is the most recent tax bill sufficient? In some instances, a multiplier has been added since the most recent tax bill was printed, resulting in increased taxes.
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We recommend obtaining publicly available tax information directly from the county, when possible. Regulation Z requires that estimated property taxes on a Loan Estimate must reflect the “taxable assessed value of the real property securing the transaction after consummation.” Property tax estimates are not subject to a tolerance — meaning they are treated as having…
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For our Fannie Mae loans, we place property insurance claim proceeds being held for future repairs in custodial accounts under our bank’s TIN (to avoid issues with the accounts showing up under the borrower’s TIN for data match and subpoena searches). We recently discovered that the Fannie Mae Servicing Guide requires us to pay interest on these funds, so we will have to move them into interest-bearing accounts. How can we properly report the interest earned on these accounts without making the funds susceptible to a levy or garnishment?
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As you noted, the Fannie Mae Servicing Guide requires servicers to place insurance loss proceeds that have not been disbursed to the borrower (or a contractor) in interest-bearing custodial accounts. We agree that you should continue to use the bank’s TIN on these accounts, in order to indicate they are custodial accounts that are shielded…
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On a residential mortgage loan application, does the loan officer have to sign the application? We are not a HMDA reporting institution.
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No, we do not believe that loan originators are required to sign loan applications. Regulation Z requires the disclosure of a loan originator’s name and NMLS identifier on credit applications and other documents related to residential mortgage loans, but it does not require the loan originator’s signature. However, secondary market investors may impose their own…
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Our new loan origination software requires us to assign one Illinois law to each type of loan to help the software identify the permissible interest rate for the loan product. For consumer non-real estate loans, should we assign the Interest Act or the Consumer Installment Loan Act? For home equity lines of credit (HELOCs), should we assign the Interest Act or the Financial Services Development Act? Also, does the Interest Act permit us to charge commercial real estate borrowers a fee for real estate valuations completed by a bank staff member?
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We are hesitant to answer your question to the extent that it might imply we believe attributing a single law to a loan type, even if only with respect to interest rates, constitutes a best practice (or even an acceptable practice in some circumstances). Having said that, the Consumer Installment Loan Act does not apply…
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We have a borrower who is purchasing a new home, but we are also taking a security interest in their current principal dwelling as an abundance of caution. Does rescission apply in this case?
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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. Therefore, we believe this loan would be subject to Regulation Z’s right of rescission. For resources…
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A customer obtained a higher-priced residential mortgage loan in 2011. The borrower has never requested to cancel the escrow account. Two years ago, the borrower entered into a contract for deed with a buyer for the home securing the loan. The customer provided proof that he canceled his homeowner’s insurance policy and that the buyer had obtained a new policy and was paying the premiums. But we never updated our system, and we continued to deduct insurance payments from the borrower’s loan payments and place them in escrow, without paying out any insurance premiums. Now there is an excess of funds in the escrow account, and we are facing two issues. First, can we terminate the escrow account? The borrower is in a nursing home, appears to be incapacitated and has executed a power of attorney, but the agent under the power of attorney has refused to terminate the escrow fund. Second, can we use the excess funds in the escrow account for the borrower’s loan payment, which is now overdue?
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While we address your specific questions below, we strongly recommend consulting with an attorney, as your bank could face liability under the Real Estate Settlement Procedures Act (RESPA), and possibly other laws, for the failure to discontinue collecting amounts for the cancelled homeowner’s insurance. Additionally, if the property securing the loan is subject to a…
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Is it permissible to include the loan number on recordable documents such as the mortgage? Is there a reason why we should or should not include the loan number on recorded documents?
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Yes, it is permissible to display your bank’s internal loan number on recorded documents such as mortgages. An interagency interpretive letter confirms that placing a borrower’s account number on recorded documents does not violate the privacy provisions in the Gramm-Leach-Bliley Act and Regulation P, under an exception for actions “necessary to effect, administer, or enforce…
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We are considering adding the HUD notice to our past due notices (which go out roughly twelve days after the loan becomes past due). Do you see any issues with adding HUD’s verbiage to our past due notices?
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No, we are not aware of issues that would prevent your institution from providing the HUD homeownership counseling notice with your past due notices. The HUD homeownership counseling notice may be combined with other notices, such as your past due notice, and it may be provided at any time within 45 days after an eligible…
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Does a business purpose loan that will be secured by the business owner’s primary residence require a right of rescission under Regulation Z?
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No, an extension of credit primarily for a business purpose is exempt from the Truth in Lending Act and Regulation Z — including their right of rescission requirements — regardless of the type of collateral securing the loan. For resources related to our guidance, please see: Truth in Lending Act, 15 USC 1603(1) (“This subchapter…
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We understand that when a loan is subject to Regulation Z’s ability to repay requirements, Regulation C requires us to report either the total loan costs or the total points and fees for HMDA purposes. If we report the total loan costs, how do we report the total points and fees? Do we report “0” or “NA” or leave it blank?
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In our view, if you determine under Regulation C that you should report the total loan costs for a particular loan, then you should enter “Not Applicable” or “NA” for the total points and fees. The FFIEC Guide to HMDA Reporting indicates that when the ability-to-repay requirements apply and closing disclosures were provided — in…