Topic: Mortgage Loans
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We recently converted from a national bank to a state-chartered bank. The Illinois Mortgage Escrow Account Act requires lenders to notify borrowers that they may terminate an escrow account when the mortgage loan balance is reduced to 65% of its original amount. Do we have to send that notice for loans originated before our conversion to a state charter?
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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 in…
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In the application disclosures that we send to applicants for variable rate HELOCs, we disclose the lowest possible APR (an APR “floor”). But after we analyze the applicant’s creditworthiness, sometimes we have to raise the APR floor, resulting in a floor that is higher than the floor disclosed in our application disclosures. The application disclosures do specify that all of the disclosed terms are subject to change. Does it violate Regulation Z to change the final APR from the disclosed APR?
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No, Regulation Z would not prohibit a creditor from offering an APR floor that differs from the APR floor disclosed on the HELOC application disclosures, provided that this term was disclosed as being subject to change — and you have indicated that it was. Because the HELOC application disclosures are provided “at the time an…
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We recently received an application for a home purchase loan where the current owner qualifies for senior and veteran property tax exemptions, but the applicant would not. This will be a higher-priced mortgage loan, so we will escrow for property insurance and property tax payments. Due to the current exemptions, the applicant would not have to pay property taxes for a year or more after purchasing the home. Should we state on the initial escrow analysis, Loan Estimate (LE) and Closing Disclosure (CD) that we will require an escrow account for property taxes? Should we list the estimated taxes and amount for prepaid taxes as zero on the LE and CD? We do calculate estimated taxes in order to complete our ability-to-repay analysis, based on a formula provided by our local county assessor’s office.
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Yes, your bank must disclose that an escrow account is required on the CD. Your bank may choose to disclose the estimated future property taxes on page 1 of the LE, but this is not required. Other than that, there is no clear place in the LE, CD or initial escrow analysis to disclose the…
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When refinancing a closed-end mortgage loan, we disclose amounts for property taxes and hazard insurance in the prepaid section of the Loan Estimate. Is that a required disclosure? We will not be collecting amounts for these items at closing; we require them as a condition of the loan, but we know that the borrower has been up to date on them (although we do not escrow for these amounts).
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Based on a conversation we had with a CFPB attorney, we believe that a creditor is not required to disclose property taxes and homeowner’s insurance premiums in this situation. Regulation Z requires the Loan Estimate and Closing Disclosure to itemize “amounts to be paid by the consumer in advance of the first scheduled payment” as…
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We originated a HELOC secured by the borrower’s primary residence. The same borrower also has an unsecured line of credit with us. The borrower recently passed away, and his home is being sold. We know that we can use the proceeds of the sale to pay off the HELOC, but can we also use the sale proceeds to pay off the unsecured line of credit? The unsecured line of credit agreement does not contain any setoff provisions, and the HELOC agreement does not contain a cross-collateralization clause. Also, while we already include cross-collateralization clauses in secured commercial loans, can we add these provisions to all secured consumer loans going forward? Would such a clause permit us to use the collateral to cover future unsecured loans?
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No, we do not believe that you can use the proceeds of the home sale to pay off the unsecured line of credit. However, you may have a right of setoff with respect to accounts or other monies the customer has at your bank. We note, though, that our guidance is based on your reading…
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When we extend our in-house balloon mortgage loans, we reevaluate the property. The evaluations usually consist of driving by the property and concluding either that the property value is consistent with our original appraisal or that it has deteriorated. We document the evaluations and retain the documentation in our loan files. Are we required to provide a copy of these evaluations to the applicants and obtain their signatures of receipt?
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Yes, we believe that your bank should provide copies of these evaluations to applicants requesting renewals of loans secured by a first lien on a dwelling. While the applicants’ signatures are not required, obtaining their signatures would be a prudent step for documenting your compliance with this requirement. Regulation B requires creditors to provide applicants…
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We have a question about how to classify a mixed-purpose, multi-unit building under the Illinois Mortgage Foreclosure Law. The building has two single-family residential units and several commercial units. One of the residential units is occupied by the mortgagor. Is the mortgagor-occupied unit considered “residential real estate” under Illinois law? What about the rest of the units? Are they considered “residential real estate” for the purpose of determining pre-judgment possession rights?
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Yes, both the mortgagor-occupied dwelling unit and the other units in the building are “residential real estate” under the Illinois Mortgage Foreclosure Law (IMFL). “Residential real estate” includes multiple-dwelling structures that contain six or fewer single family dwelling units, when at least one of those residential units is occupied by the mortgagor — which appears…
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Do we have to disclose an owner’s title insurance premium on the Loan Estimate, even if we have a copy of the purchase agreement and it states that the seller will pay the premium? If we do need to disclose it, can we include a “Seller Credit” in Section H (Other) with a negative amount to offset the owner’s policy premium? Also, should we disclose the premium amount with or without the “simultaneous issuance” discount?
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Yes, we believe that you should include the owner’s title insurance premium on the Loan Estimate. Regulation Z requires the Loan Estimate to include the owner’s optional title insurance charges under “Other” (assuming that your bank does not require the borrower to purchase owner’s title insurance). It also is appropriate to list the owner’s title…
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We have a matured HELOC that we want to extend. We pulled a flood determination and discovered the property now is in a special flood hazard area, although it wasn’t when we originally made the HELOC. The community where the property is located does not participate in the National Flood Insurance Program (NFIP). We are exploring private insurance but cannot find a policy that covers the full amount of the loan. Is the borrower required to obtain flood insurance if their community doesn’t participate in the NFIP?
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No, the borrower is not required to obtain flood insurance when the home securing the loan is located in a special flood hazard area in a community that does not participate in the NFIP. Under the FDIC flood insurance regulations, a lender may not make, increase, extend, or renew any “designated loan” unless the building…
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We require all mortgage loan applicants to complete and sign an Illinois Civil Union and Same-Sex Marriage Addendum to the Uniform Residential Loan Application (URLA) form. Is the addendum form still required in Illinois? If so, should we also provide it to HELOC applicants?
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The addendum is not required, but we believe using such a form could help your bank to determine whether applicants have entered into a civil union for HELOCs as well as closed-end mortgage loan applications. Illinois law offers members of a civil union the same protections and benefits as married couples. Consequently, it is helpful…