Topic: Mortgage Loans
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We include a Confession of Judgment clause in our commercial promissory notes. Our forms vendor recently started producing an advisory warning about this clause. Should we remove the confession of judgment clauses from our notes?
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No, you do not need to remove the confession of judgment language from your commercial promissory notes, provided that it is possible to ascertain the amount of the potential judgments from the face of the notes (without reference to other documents). Confession of judgment clauses are common in commercial loan agreements, but it is important…
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What is the correct way to disclose a seller-paid owner’s title insurance policy on the Closing Disclosure?
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You should disclose the owner’s title policy under “Other Costs” in the “Seller-Paid” column. The Closing Disclosure rules require you to disclose title insurance charges, even if they are paid by the seller, under “Other.” For resources related to our guidance, please see: Regulation Z, 12 CFR 1026.38(g)(4) (“Under the subheading “Other” and in the…
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Can we make an additional advance on a closed-end mortgage loan and add the amount of this advance to the balance? Our security agreements permit us to make such an advance.
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Yes, you may add an additional advance to an existing closed-end loan. The question becomes whether the additional advance would require you to provide a new set of disclosures for the original loan. It depends on how the additional advance is structured. If the advance were to satisfy the existing obligation and replace it with…
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We are thinking about offering $25 gift cards to existing bank customers who refer mortgage loans to us. Is that permissible? What if we provide the gift cards to employees or to others?
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Providing a gift card to a bank customer for referrals of “federally related mortgage loans” would violate RESPA's prohibition against kickbacks. RESPA's prohibition against kickbacks applies to “federally related mortgage loans,” which includes loans secured by 1-4 family residential real property and manufactured home (with certain exceptions, such as for temporary financing). There is no…
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In the new Closing Disclosure, where should we disclose a seller’s payment for the owner’s title insurance policy? What if the title insurer discounts the owner’s policy when it is purchased at the same time as the lender’s policy? For example, the lender’s title policy is $300, the owner’s title policy is $400, and a $35 discount is applied to the owner’s title policy, making it $365.
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You should disclose the discounted amount of the owner’s title policy, $365, under “Other Costs” in the “Seller-Paid” column. The Closing Disclosure rules require you to disclose title insurance charges, even if paid by the seller, under “Other.” Based on informal guidance we received from a CFPB attorney, you may disclose the owner’s policy as…
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The collateral protection insurance coverage has lapsed on a property that is subject to a residential mortgage loan. However, the borrower has filed for bankruptcy, and we have received notice of the automatic stay. Can we charge the customer for the forced placement of insurance coverage? Our account agreements permit us to force place insurance and charge the borrower.
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No, in this case, you most likely cannot charge the customer for the forced placement of insurance coverage without court approval. Regulation X requires that you send certain notices before you may charge the borrower for force placing insurance, and there is no exception made for borrowers in bankruptcy. At the same time, the federal…
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Are we required to fill out a Loan Estimate for a bridge loan to purchase a new home? The loan term would be one year – 11 months interest only, with a final balloon payment. The loan would be secured by the borrowers’ current residence and the purchased property. On the Loan Estimate, what should we disclose as the Property, Property Value, Purpose, and Product?
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Yes, the new Loan Estimate is required for every “closed-end consumer credit transaction secured by real property,” including bridge loans. Property: The Loan Estimate should list both property addresses, because both properties secure the transaction. The Official Interpretations to Regulation Z state that “where more than one property secures the credit transaction, § 1026.37(a)(6) requires…
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Our mortgage software understated the APR for several adjustable rate mortgage (ARM) loans by about 20 basis points. How should we calculate the cure amount? Are we required to pay the borrowers the difference between the total amount of interest that we should have disclosed and the amount that we did disclose?
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In order to avoid civil liability (and exam criticism) for overstating the APR on these loans, the Truth in Lending Act (TILA) requires you to notify and reimburse your affected customers for the overcharges within sixty days of discovering the error. While the TILA does not specify a calculation method for the required reimbursements, clear…
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In Illinois, the seller usually pays for the owner’s title policy. Should we disclose the owner’s policy premium on the Loan Estimate?
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You are not required to disclose the owner’s title policy on the Loan Estimate if the borrower is not going to pay for it. Only fees paid by the borrower are disclosed on the Loan Estimate. In most cases, the borrower will not be paying for the owner’s title policy, and consequently Regulation Z does…
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We currently use verbal rate lock agreements and do not use written agreements. In the new Loan Estimate, is it correct to disclose that no rate lock is in place, unless we have a written rate lock agreement? If we enter into a verbal rate lock agreement after providing the Loan Estimate, do we have to reissue the Loan Estimate? What if the rate lock agreement is in writing?
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The supplementary information for the final TRID rules clarify that the rate lock disclosure applies only to written agreements. Without a written agreement executed by your institution and the borrower, you should disclose that no rate lock agreement is in place — even if you have agreed to honor a rate lock in a verbal…