Topic: Mortgage Loans
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An attorney contacted us on behalf of a residential mortgage loan customer who has not made any mortgage payments over the last year. The customer would like to take advantage of the Illinois Hardest Hit Program, which the attorney says will pay for the customer’s mortgage payments for two years if we waive all accrued late fees. Is that true? Can you provide any background information?
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It is possible, but certainly not guaranteed, that the Illinois Hardest Hit Program could provide up to 12 months of mortgage payments, while also covering the borrower’s 12 months of delinquent payments. However, the program would not provide two years of payments going forward. The Illinois Housing Development Authority (IHDA) runs the program, which recently…
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Do we need to check a borrower’s credit report when we extend their existing loan? Or is this a requirement only for new loans and refinancings?
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We are not aware of any express requirement to review a consumer’s credit report when modifying an existing loan to extend its terms, but whether reviewing a credit report would be appropriate for a specific loan can depend on many factors, ranging from safety and soundness considerations to consumer protection considerations (the latter is discussed…
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Currently, we ask our mortgage borrowers to fill out a civil union addendum that asks whether the borrower is in a registered civil union. Is that required? Are there any other specific disclosures or documents that we need to provide to mortgage borrowers who are members of a civil union?
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There are no specific documents or disclosures that you must provide to members of civil unions. Because Illinois law offers members of a civil union the same protections and benefits as married couples, you must provide members of a civil union the same documents and disclosures that you provide to spouses. This is true whether…
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Are there any Illinois laws regarding when past due loan notices must be provided?
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No, there are no Illinois-specific laws regarding past due notices at this time. Previously, the Illinois Code of Civil Procedure required lenders to send borrowers a “grace period” notice whenever a residential mortgage loan became 30 days delinquent. However, this provision included a sunset date, which automatically repealed the requirement on July 1, 2016. It…
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We made an error in disclosing the initial interest rate for an adjustable rate mortgage (ARM) on the Closing Disclosure. This was a simple, one-time clerical error, but it does exceed tolerances (we think the error resulted in understating the finance charge by several thousand dollars). We know we owe the customer restitution and a new closing disclosure. Is it defensible to leave it at that? Also, if we provide restitution, do we have to pay it as a lump sum?
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It may be possible to argue that the disclosure issue was an isolated incident, requiring only restitution and new disclosures, but that depends on the circumstances, and we do recommend consulting with bank counsel about the error and the best response for your bank. The Truth in Lending Act (TILA) generally requires examiners to order…
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For a home purchase loan, are we required to provide separate closing disclosures to the buyer and the seller? In the past, we provided both parties with the same HUD. Is that a best practice? Are there any privacy concerns? Can we also provide the Closing Disclosure to the realtor?
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No, we believe it would violate your customer’s privacy rights if your bank were to provide a full Closing Disclosure to the seller, unless your customer has consented to the disclosure. Alternatively, the TRID rules provide a modified Closing Disclosure form that redacts certain personal financial information of the buyer for purposes of providing to…
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A customer obtained private mortgage insurance (PMI) in connection with the loan for his primary residence. He requested that the PMI be cancelled, but a recent appraisal determined that the loan-to-value ratio is still above 80%. In addition, he no longer lives in the house, but rents it out to tenants. Because this is now considered an investment property, can he be relieved of the PMI requirement?
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Your loan agreement will govern whether the residential mortgage loan continues to require PMI after the borrower stops using the property as his primary residence. The federal Homeowners Protection Act (HPA) does not require PMI in any real estate transaction. Residential mortgage lenders (often driven by the secondary market) determine whether they will require a…
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If a loan originator (LO) receives a referral for a consumer mortgage loan from another bank employee, can we reduce the LO’s commission for the resulting mortgage loan? Also, if we make a pricing exception to offer a lower interest rate on a mortgage loan, can we reduce the LO’s commission to offset the lower interest rate? Currently, our commissions are based on loan volume only.
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Yes, we believe that you may reduce a loan originator’s compensation for loans that result from referrals from other bank employees, provided that those referred loans have similar loan terms as loans that come in from other referral sources or leads. However, we do not recommend reducing a loan originator’s compensation based on a loan’s…
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We have a mortgage borrower who is in the process of divorcing her husband. The wife is purchasing a residence, and she is signing the note and title alone. Does her husband need to sign the Closing Disclosure?
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No, Regulation Z does not require a non-borrowing spouse to sign a Closing Disclosure. In fact, Regulation Z does not require any signatures on the Closing Disclosure — obtaining signatures on the Closing Disclosure form is optional. In addition, because the spouse is not entitled to the right of rescission, both because the transaction is…
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We ask mortgage loan applicants to fill out a Civil Union Addendum asking applicants whether they are a party to a civil union or same sex marriage in Illinois or in another jurisdiction. Is this still required, or do we need to update the form?
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We recommend revising the form to reflect that Illinois law now recognizes both same-sex marriages and civil unions (the latter still being available for both same-sex and opposite-sex couples). We do not recommend distinguishing between same-sex marriages and opposite-sex marriages (or same-sex civil unions and opposite sex civil unions), or inquiring about the gender of…