Topic: Mortgage Loans
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If a consumer balloon mortgage is past maturity and we extend the maturity date, increase the fixed interest rate, and charge a small fee, can we consider this a modification instead of a new transaction requiring new disclosures (i.e., a refinancing)? Does it make a difference if the loan is past maturity? We do not want to replace the original loan.
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Yes, we believe you may extend a consumer balloon mortgage, increase the fixed interest rate, and charge a small fee without the transaction being considered a refinancing requiring new disclosures, provided that your modification agreement does not satisfy and replace the existing mortgage loan with a new transaction. Further, we do not believe this answer…
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Our bank offers balloon mortgages with initial terms of sixty-one months and amortization terms of twenty years. We typically extend them for one, two, or three years. With interest rates increasing, we may have to substantially increase the interest rates on these extensions, which would increase the loan payments. To keep payments down, we want to re-amortize these loans at amortization terms of twenty years. This would not increase the balloon payment. Would this be a an unfair, deceptive, or abusive act or practice? Would we be violating any laws if we substantially increase the interest rate?
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No, we do not believe that extending, increasing the interest rate of, and re-amortizing your balloon loans would be considered an unfair, deceptive, or abusive act or practice, provided that these changes are clearly and conspicuously disclosed and agreed to by your customers. However, such a modification could be considered a “refinancing” under Regulation Z…
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We extended a commercial loan for the purchase of real estate that our customer had been leasing. The lease provided an option to purchase the property at a certain price after five years. We financed 100% of the purchase price stated in the lease, but an appraisal of the property put the transaction at a 75% loan-to-value ratio. For purposes of the supervisory loan-to-value ratio limits, should we apply a loan-to-value ratio based on the property’s purchase price or appraised value?
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We believe the loan-to-value ratio should be based on the property’s purchase price in this case. The Interagency Guidelines for Real Estate Lending Policies generally require the loan-to-value ratio for a purchase loan to be calculated with the property value defined as “the lesser of the actual acquisition cost or the estimate of value.” The…
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Our loan origination system recently updated and the addendum to the application inquiring of civil union was removed. Is this form still necessary? If so, is it only applicable to certain types of loans?
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An Illinois Civil Union and Same-Sex Marriage Addendum is not required, but we believe using such a form is helpful in all residential real estate transactions to identify individuals who may have relevant property rights and interests because they are a member of a civil union. We believe it is helpful to know whether a…
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A private group is developing a subdivision and has been unable to sell the new homes. The group wants to partner with us to offer incentives to promote more sales in the subdivision. Our bank wants to offer special terms to the first four customers who buy one of the new homes in the developer’s subdivision — such as balloon loans that would be interest-free for the first three years of the loan term. Would there be any fair lending issues associated with offering these loan incentives only to customers who want to buy homes in this subdivision?
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Yes, we believe there may be fair lending issues associated with offering favorable loan terms only to customers who buy one of the developer’s new homes, since the basis for qualifying for the incentive would be the geographic location of the property securing the loan. It appears that this incentive would violate the Illinois Fairness…
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Can we use a change in terms agreement to extend the term and increase the interest rate on a consumer balloon mortgage that is reaching maturity without the transaction being considered a refinancing? The interest rate is currently fixed and will continue to be fixed after the increase. Would the answer change if we extend and increase the interest rate after a consumer home equity line of credit (HELOC) has already matured? If allowed, what must be addressed or disclosed within the change in terms in addition to the new rate?
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Yes, we believe you may extend and increase the fixed interest rate on a consumer balloon mortgage without the transaction being considered a refinancing, provided that your modification agreement does not satisfy and replace the existing mortgage loan with a new transaction. Further, we do not believe this answer would change if you extend and…
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We would like our mortgage loan originators to send out an email reminders to mortgage loan customers with the details of their upcoming closing, such as the time and place. The subject line of the email would be “Your Closing.” The email would contain one line near the end asking the borrower to refer anyone they know looking for a mortgage to our bank. Does this email need to comply with the CAN-SPAM rules?
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No, we do not believe the email needs to comply with the CAN-SPAM rules, as the email’s “primary purpose” does not seem to be “commercial.” The CAN-SPAM Act applies only to commercial emails, defined as “any electronic mail message the primary purpose of which is the commercial advertisement or promotion of a commercial product or…
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If we are merging two affiliated banks, are we exempt from the Real Estate Settlement Procedures Act (RESPA)’s mortgage servicing transfer notice requirements? We plan to continue accepting payments made in the acquired bank’s name and the payment address will not be changing. If we are exempt from RESPA’s notice requirements, is there a similar exemption under the Illinois Banking Act?
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Yes, we believe you would be exempt from providing notice of any mortgage servicing transfers resulting from the merger under RESPA if there is no change in account numbers or amount of payment due. Regulation X states that “a transfer that results from mergers or acquisitions of servicers or subservicers” are not considered transfers of…
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Does Illinois law prohibit a loan originator from notarizing a mortgage securing a loan they originated? Our external auditor recommended that we have someone who is not involved in the loan transaction notarize the mortgage. Is this a legal requirement or simply a best practice?
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Disclaimer: The IBA has received information from the Office of the General Counsel for the Illinois Secretary of State that changes our guidance on this question. Please review this Q&A for our most recent guidance on this subject. We believe that your external auditor’s suggestion is based on recent revisions to the Illinois Notary Public…
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Is there an Illinois law requiring a “Net Tangible Benefit Form” when refinancing a mortgage? If so, does this apply only to banks of a certain size? The new software we are using is asking for this.
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Two Illinois laws require, in certain circumstances, an analysis of whether a refinancing would result in a tangible net benefit, which may be why your software requires the completion of a “Net Tangible Benefit Form” when refinancing a mortgage. Both laws apply to all institutions, regardless of size. The Illinois Fairness in Lending Act prohibits…