Topic: Mortgage Loans
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A mortgage loan customer chose an unaffiliated title company from our service provider list. The title company provided a quote for its title services as well as its fee for conducting the loan closing, and we disclosed both charges on our Loan Estimate. But we recently learned of two changes: the bank will be conducting the loan closing in-house, eliminating the closing fee, but the title company underestimated its quote for the title services due to a clerical error. Can we charge the borrower the correct, higher fee? And when calculating our 10% good faith tolerance levels, can we account for the closing fee that has been dropped?
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Yes, you may charge the borrower the correct amount for the title insurance policy — even if it is higher than what you disclosed in your LE — provided that the increase does not cause the total closing costs to exceed the 10% good faith tolerance level for required services that the borrower shopped for.…
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Are there any limitations in Illinois on late fees for a home equity line of credit (HELOC) or for first or second lien real estate mortgages? Is there a required grace period before we can charge late fees?
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There are very few limitations on loan late fees under Illinois law, provided that your customers have agreed to such fees in the loan agreements. The Illinois Financial Services Development Act authorizes late fees on revolving credit plans (such as HELOCs) without any specific limit. Financial institutions may set the fee amount in their plan…
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When a borrower has been delinquent for at least ninety days, we used to send a letter demanding the entire amount past due, with a lockout preventing payments from processing. Under the latest mortgage servicing amendments that went into effect in October of 2017, can we still send out this letter and refuse to credit loan payments? Will we be able to file a foreclosure action after 120 days of delinquency? We are a small servicer.
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Yes, we believe that your bank may send demand letters and refuse to credit monthly loan payments on a delinquent closed-end consumer mortgage loan, provided that you already have accelerated the loan because of the delinquency. The general rule under Regulation Z for closed-end consumer mortgage loans is that servicers must credit periodic payments covering…
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Did the Illinois law requiring a Homeowner Notice in foreclosure actions expire?
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No, the Illinois Mortgage Foreclosure Law still requires lenders to attach a “Homeowner Notice” to foreclosure summons when foreclosing on a defaulted residential real estate loan. Among other items, that notice informs borrowers of the right to reinstate the mortgage or redeem the foreclosed property. You may be thinking of the Illinois “grace period notice”…
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An external auditor told us that the Illinois Interest Act prohibits us from charging loan release fees for home equity lines of credit (HELOCs), citing 815 ILCS 205/4.1. Is that true?
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We believe that Illinois law permits banks to charge HELOC lien release fees, provided that your customer has agreed to pay such fees on the HELOC agreement. Section 4.1 of the Interest Act appears to prohibit lenders from charging borrowers for “expenses, including recording fees and otherwise” when releasing a mortgage lien. However, the Illinois…
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If we are the lender on a mortgage loan subject to the TILA-RESPA Integrated Disclosure (TRID) rules, can we also act as the settlement agent? If so, should we list the bank’s name on the Closing Disclosure as the lender and as the settlement agent? Can we also leave the other “Settlement Agent” fields blank, including the File #?
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Yes, a lender may act as its own settlement agent. We are not aware of any federal or Illinois law that would prevent a financial institution from conducting its own mortgage loan closings, and in fact, this is a common practice at many institutions when closing second lien loans. We do not believe that a…
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We have a commercial loan for which we required a dwelling as additional collateral. We did not report the loan on our HMDA loan application register (LAR) because the loan purpose was not to purchase or improve the dwelling. If we refinance this loan and again require the dwelling as additional collateral, is the loan reportable under HMDA as a refinance?
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Yes, this loan would be reportable as a refinancing under Regulation C. Under the current version of Regulation C, a refinance is reportable under the Home Mortgage Disclosure Act (HMDA) if both the existing and new obligation are secured by liens on a dwelling. As stated in FFIEC Guidance, “[t]he purpose of the loan being…
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We entered into a mortgage loan with an LLC where we required individual members of the LLC to serve as guarantors and pledge additional personal property to secure the loan. If these individuals place that personal property into a trust or transfer ownership of the property to a different LLC, do we need to modify the original mortgage agreement or the guarantee agreement?
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If the personal property securing the loan is transferred to a new legal owner, such as a different LLC or a trust, your bank should either modify the guarantee agreement to include the new owner as a guarantor (with the new owner’s signature) or enter into a separate guarantee agreement with the new owner. Either…
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For our portfolio consumer mortgage loans, when borrowers receive insurance claim checks, we deposit the checks into escrow accounts from which we disburse funds directly to repair contractors. How should we set up these accounts? Currently, we set them up as savings accounts under the customer’s name, with our bank listed as the custodian. This creates some issues, because when we search our accounts in response to a subpoena or levy or for unpaid child support data matching, these accounts will be listed under the customer’s name, even though the funds in these accounts technically don’t belong to the customer. Should we instead set up the accounts using our bank’s TIN? Should they be deposit or savings accounts?
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We recommend reviewing your mortgage notes and related documents, which may specify your bank’s obligations as to insurance claim proceeds. For example, the Fannie Mae standard note states that the lender is not required to pay interest on property insurance claim proceeds. If your bank’s mortgage notes or other agreements include similar language, then your…
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A borrower has requested a home equity line of credit (HELOC) secured by a second mortgage. Can we pay off the first mortgage on the home with the HELOC funds at closing?
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Yes. We are unaware of any limitations on the use of HELOC funds to pay off a first mortgage.