Topic: Mortgage Loans
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Our internal auditor advised us that the grace period notice requirement was repealed as of July, 2016. Can you confirm? Was this change broadly communicated?
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Yes, we can confirm that the grace period notice provisions in the Illinois Code of Civil Procedure were automatically repealed on July 1, 2016. To our knowledge, this change was not broadly communicated by any Illinois agencies, such as the Illinois Department of Financial and Professional Regulation (IDFPR). In the Illinois General Assembly’s most recent…
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We originate loans brokered by third party originators (TPOs) and also serve as a broker to other institutions. We only work with other banks. We require them to complete a loan brokerage agreement and disclosure statement. Does Illinois law require this form or any other forms?
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No, we do not believe that banks must use the loan brokerage agreement and disclosure statement required by the Residential Mortgage License Act of 1987 (RMLA) in a brokerage relationship with another bank. The RMLA requires licensed mortgage brokers to provide a loan brokerage disclosure statement and obtain a signed loan brokerage agreement before a…
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We provide a copy of Section 5 of the Mortgage Escrow Account Act at mortgage loan closings. Are we required to also provide a separate notice when the mortgage loan balance is reduced to 65% of the original loan amount?
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Yes, the Mortgage Escrow Account Act requires banks and other mortgage lenders to provide borrowers with two notices of the right to terminate their escrow accounts: first, at the mortgage loan closing, and second, when the mortgage loan balance is reduced to 65% of the original amount. For resources related to our guidance, please see:…
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Due to a technical issue, we failed to send initial rate adjustment notices for some of our adjustable rate mortgage (ARM) loans. We are now sending the initial ARM notices and will not change the payment amount until the 210 day notification period has passed. Are we required to also delay the rate adjustment, even though the date of the rate adjustment was disclosed in our loan agreement?
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Yes, we recommend delaying the rate change as well as the payment adjustments. The initial ARM notice must be provided at least 210 days “before the first payment at the adjusted level is due” (or at the loan consummation, if the first adjustment is scheduled to occur within the first 210 days after consummation). The…
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In the Illinois Interest Act, there are provisions that appear to prohibit us from charging fees for releasing a security interest for a home equity line of credit (HELOC), including recording fees charged by the county recorder. Do I understand that correctly? Or are we exempted under the Illinois Financial Services Development Act?
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We believe that Illinois law permits banks to charge HELOC lien release fees, including county recorder fees, provided that your customer has agreed to pay such fees. 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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Our mortgage escrow department issued a $1,300 check for homeowners insurance that has not been deposited by the insurance company. The house securing the mortgage loan was sold about one month after the check was issued, but we do not know whether all or a portion of the check amount is refundable due to the sale of the house. The borrower has since died, and his son and daughter have asked us to issue a check to them for the $1,300 amount. What should we do?
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We recommend contacting the insurance company to inquire about the status of the check and to determine what amount of the check is refundable to your former borrower’s estate. In any event, if the loan has remained current and there is a surplus of over $50 in the mortgage loan escrow account, that surplus should…
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One of our commercial mortgage loans has matured, and we would like to extend it. The borrower has not been able to pay off the loan due to a delay in a sale of the loan collateral. The borrower is currently making monthly payments at a post-maturity interest rate (which is 2% higher than the loan’s pre-maturity interest rate). What should we use as the effective date for the renewal agreement? If we use the original loan’s maturity date, then our loan system will not treat the borrower’s recent payments as post-maturity and will apply the extra 2% interest paid to the loan principal. (We could rectify this by entering into an addendum in which the borrower agrees that the higher post-maturity interest rate applies.) But if use the signing date as the effective date, we would be concerned about our lien priority because there would be a break between the original loan agreement date and the renewal agreement date.
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The effective date that you choose for the renewal of a note is a business decision for your bank. Under Illinois law, it is permissible to backdate an agreement — in other words, to use an effective date for an agreement that predates (or postdates) its signing date — provided that the parties' intention to…
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We issued a Loan Estimate for a mortgage loan secured by a mobile home. We did not disclose any property taxes due at closing, but we just learned today that for mobile homes, the borrower will have to pay property taxes at the closing for the remainder of the year. Do we have to reimburse the borrower for that charge, since we did not disclose it? Also, the estimated title insurance costs were inaccurate – the owner’s title policy cost decreased by $127, but the lender’s policy increased by $130. Do we have to reimburse for $130, or can we offset that amount by the decreased cost of the owner’s policy? We do not permit borrowers to shop for the lender’s title insurance provider.
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We believe that you should reimburse the customer for the increases in both cases, since there have not been any changes that would qualify as a “changed circumstance” permitting you to issue a revised Loan Estimate. Regulation Z does permit lenders to revise the charges disclosed in a Loan Estimate, but only if there is…
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We had a technical issue that caused a failure to send notices of the initial interest rate adjustments for some of our adjustable rate mortgage (ARM) loans. The increased interest rate will correspond with an increased payment. We are now sending the notices, but they will not be timely. What is the best way to rectify this situation? Should we delay changing the customers’ rates and payment amounts?
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Yes, we recommend delaying the rate and payment adjustments until after you have provided customers with the notice required by Regulation Z. Regulation Z requires that ARM borrowers receive advance notice of rate changes, and the notice of an initial rate adjustment must be provided to customers at least 210 days (and no more than…
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We have a commercial line of credit secured by a mortgage that has matured. We would like to renew it using a modification of mortgage. Can we provide a new note with the mortgage modification, or do we have to use a change in terms agreement instead of a new note? If we issue a new note, will it affect our lien position?
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In general, there is no prohibition against issuing a new note when extending the maturity date of a commercial line of credit. However, whether issuing a new note will affect your lien position on the mortgaged collateral depends on whether the new note is intended to extinguish the original note. Illinois courts have repeatedly held…