Topic: Mortgage Loans
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How should we report mortgage interest on IRS Form 1098 for loans that are on non-accrual status due to delinquencies or partial payments?
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The IRS has not provided guidance on calculating the interest received from borrowers who have become delinquent and are only making partial payments. In the absence of IRS guidance, we can only recommend what we believe is a reasonable approach to calculating interest received for purposes of Form 1098 filings. We recommend reviewing your loan…
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We are a small servicer, and we are switching from loan passbooks to a new billing system that will send out bills to mortgage customers for each payment. Are we required to send bills to customers who have signed up for an autopay or ACH option? What about customers who have prepaid that month’s mortgage payment?
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No, you are not required to send autopay or prepaid borrowers with periodic billing statements. However, you are required to send notices or other means of confirming ACH payments from another institution, as mentioned below. Because your institution qualifies as a small servicer, you are exempt from Regulation Z’s mortgage periodic statement requirements. Consequently, we…
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If an LLC enters into a mortgage loan for the purpose of purchasing the primary residence for the LLC’s owner, do the TILA-RESPA Integrated Disclosure (TRID) rules apply?
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No, the TRID rules do not apply to loans made to business entities. The TRID rules (and Regulation Z generally) apply only to consumer credit transactions, meaning loans offered to a consumer for personal, family or household purposes. A loan extended to a business entity, such as an LLC, is exempt. However, you may have…
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We have a customer with an existing balloon mortgage loan that was originated in 2008 and is coming up for renewal soon. If we renew this loan, will it fall under the TRID requirements?
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We believe that you may renew a balloon loan before its maturity date without it falling within Regulation Z’s definition of a “refinancing” (which would require new disclosures under the TRID requirements). However, the language that you use in the loan modification documents is important in order to achieve this result. The general rule is…
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If the US Department of Agriculture (USDA) loan guarantee fee for a consumer mortgage decreased by one penny after we issued our Loan Estimate, do we need to issue a revised Loan Estimate to reflect that change? We do not know why there is now a one-cent difference, but we believe it was a software rounding issue. There are no other changes to the closing fees and costs.
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No, the TILA-RESPA Integrated Disclosure (TRID) rules do not require you to issue a revised Loan Estimate simply due to a one-cent decrease in a USDA loan guarantee fee. Regulation Z permits creditors to issue revised Loan Estimates only in certain situations such as when changed circumstances result in increased charges. In this case, you…
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Our bank made a closed-end construction loan to a borrower. The loan was not intended to convert to permanent financing after construction was complete. However, now that construction is complete, the loan has a remaining balance of $100,000. The loan is up for renewal, and we would like to change the terms from a variable rate to fixed rate and from interest only payments to principal and interest payments. Can we issue a change in terms without issuing a new loan?
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Whether a subsequent transaction related to the same loan should be treated as a new loan depends on the specific facts, including consideration of the original and any subsequent loan documents. In this situation, for the reasons discussed below, we believe that the continuation of the extension of credit should be treated as a new…
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We offer higher priced mortgage loans that are balloon loans with a 61-month fixed rate term and an amortization of up to 30 years. Which Federal Financial Institutions Examination Council (FFIEC) table should we use to determine average prime offer rates (Average Prime Offer Rates – Fixed or Average Prime Offer Rates – Adjustable)?
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You should use the FFIEC’s fixed-rate table for the loans you described. The balloon payment at the end of loan term does not change the fact that the loans have a fixed rather than adjustable interest rate. A fixed-rate mortgage is defined as a transaction secured by real property or a dwelling that is not…
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Our new mortgage document provider is prompting us to provide the Borrower Information Document under the rules for the Residential Mortgage License Act of 1987 (38 Ill. Adm. Code 1050.1110) for HELOC borrowers. Is that required? A lot of the information required in this document seems inapplicable to HELOCs.
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No, you are not required to provide the Borrower Information Document required by the Illinois Residential Mortgage License Act of 1987. That law does not apply to financial institutions. It exempts “any bank . . . savings bank, or credit union.” However, if your institution has subsidiaries or affiliates that are not banks, they are…
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We had a loan applicant who applied for a loan in person, and we have rejected the application. We later discovered that the applicant did not receive the questionnaire that we use to collect government monitoring information (GMI). For HMDA reporting purposes, how should we report the GMI for this application?
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We recommend contacting the applicant and providing the opportunity to self-report his or her GMI (race, ethnicity and gender). While this will not correct the failure to obtain the GMI at the time of the loan application, it will allow you to demonstrate to examiners that you have attempted to meet the spirit of the…
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Under the TRID rules, if an appraised value comes in less than we anticipated and the applicant already has received the Loan Estimate, do we have a valid changed circumstance permitting us to issue a revised Loan Estimate? The lower appraisal value means that the loan amount will change, but none of the charges disclosed on the Loan Estimate will change.
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No, we do not believe the TILA-RESPA Integrated Disclosure (TRID) rules permit you to issue a revised Loan Estimate simply due to a lower appraised value of the property (subject to the discussion below). While you state that the charges will not change, the loan amount, estimated payments, cash-to-close and possibly other loan terms set…