Topic: Mortgage Loans
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Would we violate a customer’s privacy rights by providing a copy of the customer’s Closing Disclosure to the seller and the seller’s realtor in advance of the closing (so that they can check it for accuracy)?
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Yes, 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 agrees to providing this 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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We qualify as a small creditor under the Qualified Mortgage (QM) rules, but we are not located in a “rural or underserved area.” We do make portfolio balloon loans that qualify for the small creditor balloon QM exemption, but that expires on April 1st of this year. After that date, can we continue to make balloon mortgages? Do you recommend not offering balloon loans and instead offering adjustable rate mortgages?
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We believe you may continue offering balloon loans that pass an ability-to-repay (ATR) analysis. However, your balloon loans will not qualify as QMs after April 1, 2016, unless you qualify for the “rural or underserved” exception to the QM requirements (which may be subject to change, as discussed below). As you suggested, an ARM loan…
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Aside from ATR or QM issues, is there a state law that requires us to execute balloon loan renewals, extensions or modifications before the loan’s original maturity date?
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No, we do not believe that you are required to enter into a renewal, extension or modification before the loan’s original maturity date. Regulation Z distinguishes a “refinancing,” which could require a new set of disclosures, from other transactions, such as renewals, extensions and modifications, which do not require new disclosures. The general rule under…
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When we accept telephone applications, we do not obtain written applications from the customers. How should we demonstrate the loan applicants’ intent to apply for joint credit?
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We recommend that you obtain verbal confirmation of joint intent from the applicant during the telephone call in which the application is made and retain documentation of the conversation with the loan file. Regulation B does not require you to obtain written confirmation of intent to apply for joint credit; it merely suggests that an…
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We have a residential loan with our bank that is being refinanced by our bank, and the three-day right of rescission (ROR) will apply to the refinancing. Can we collect interest on the original loan during the ROR period, as well as collect interest on the refinancing loan as of its closing date (which would mean collecting interest for both loans during the ROR period)? The funds for the refinancing loan would not be disbursed until after the ROR period expires.
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We believe this practice would be highly unusual and quite possibly could violate both loan agreements, as well as raise questions under both Illinois law and the federal UDAAP prohibitions. The crux of the problem is that interest begins accruing on the second loan before the second loan’s proceeds have been disbursed. Charging this interest…
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Is a temporary bridge loan with a term shorter than one year subject to the higher-priced and high-cost loan provisions? Are there any other issues with the interest rate or escrow requirements?
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A bridge loan is covered by the high-cost mortgage requirements, but not the higher-priced mortgage requirements, in Regulation Z. A bridge loan secured by the borrower’s principal dwelling may qualify as a “high-cost mortgage” if the interest rate exceeds 6% or 8% over the average prime offer rate, or if it has points and fees…
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Are there any limitations on late fees for higher-priced mortgage loans under federal or state law? If so, should our late fees be calculated as a percentage of the total payment or just the portion that is past-due?
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No, there are no limitations on late fees for “higher-priced mortgage loans,” which have interest rates exceeding 1.5%, 2.5% or 3.5% over the average prime offer rate (depending on the lien position and loan amount). Regulation Z imposes escrow, appraisal and other requirements on higher-priced mortgage loans, but it does not limit late charges for…
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Does Illinois law dictate how title charges are to be described and itemized?
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No, we are not aware of any Illinois law that addresses how you should disclose title insurance charges. When disclosing title insurance charges in Illinois, your institution should follow the TRID rules. For more information on the TRID requirements for title insurance disclosures, we recommend reading the following IBA Q&As: What is the correct way…
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If we pay property taxes on behalf of a delinquent borrower, can we add those amounts to the loan principal and charge interest? Our loan agreement requires borrowers to pay the taxes. It does not expressly permit us to add the taxes to the loan principal, but it does generally permit us to add amounts advanced on behalf of a borrower to the loan principal and charge interest on those amounts.
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It may be possible to add the property taxes to the loan principal, but it would depend on the specific language in your loan agreement. Our advice is to ask your bank counsel to review the note and mortgage document for an answer to this question. Going forward, we recommend establishing a uniform policy for…
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The IRS filed a tax lien on a property that secures a HELOC. The HELOC promissory note has a five year term (with extensions permitted), and the mortgage securing the HELOC has a twenty year term. Our lien predates the IRS lien, but now the five-year HELOC term is up. Is there a law that prohibits us from renewing the HELOC without entering into a new mortgage? We don’t want to lose our lien position.
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Yes, we believe that you may renew the HELOC without entering into a new mortgage or jeopardizing the priority of your lien. In order to preserve your lien position vis-a-vis the IRS, however, we do recommend entering into a loan renewal agreement with the borrower, as opposed to refinancing the loan. To establish that the…