Topic: Mortgage Loans
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The 2015 legislation amending the High Risk Home Loan Act (P.A. 99-288) states that it takes effect upon becoming law, and it became law on August 5, 2015. Does it apply only to loan applications received on or after August 5, 2015, or does it also apply to loans closed on or after August 5, 2015, for which applications were received before August 5, 2015?
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Changes made by Public Act 99-288 to the High Risk Home Loan Act apply to all “high risk home loans” closed on or after August 5th. The definition of “high risk home loan” in Section 10, which is what the legislation amended, is tied to the qualifying clause “at the time of origination.” For resources…
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We recently raised our document preparation fee, and our examiners are now questioning whether the fee should be excluded from the finance charge. We think they are suggesting that the fee is not “bona fide and reasonable.” One of our lenders told us that his former employer charged the same higher fee. Can you confirm that the fee should be excluded from the finance charge?
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If your examiners are questioning whether the fee is bona fide and reasonable, they may conclude that it should not be excluded from the finance charge. In general, Regulation Z exempts from the definition of a finance charge your “fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents,” but only…
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Does Illinois law prohibit interest-only residential mortgage loans?
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No, we are not aware of any Illinois law that generally prohibits interest-only residential mortgage loans, although there is a state requirement that operates to sometimes prohibit such loans. If the mortgage loan triggers the definition of “high risk” in the High Risk Home Loan Act, that law prohibits an interest-only feature that results in…
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When making a mortgage loan, is there any way we can ask that the borrower’s spouse be a co-borrower when the other spouse qualifies for the loan alone?
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No, the Equal Credit Opportunity Act (ECOA) and Regulation B prohibit you from requiring a borrower’s spouse to serve as co-borrower, unless the spouses jointly applied for the credit. You may not “require the signature of an applicant’s spouse or other person, other than a joint applicant, on any credit instrument if the applicant qualifies…
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We would like to extend a business-purpose mortgage loan to an Illinois corporation that is solely owned by a German corporation. We understand the collection risks, but would there be any foreclosure issues, given the company’s foreign ownership? Also, we are opening a deposit account for the Illinois corporation and a related foreign company — are there any other compliance considerations?
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Mortgage Foreclosure Considerations We are not aware of any special considerations that would apply when foreclosing a loan made to a foreign-owned Illinois corporation. The borrowing entity will be treated as a domestic corporation (as defined in the Illinois Business Corporation Act of 1983), since it was incorporated in Illinois, irrespective of its foreign ownership.…
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Does the Illinois Mortgage Escrow Account Act apply to a mortgage secured by property that is outside of Illinois? The loan documents state that the law of the state where the property is located will apply.
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We believe the best practice would be to comply with the Illinois Mortgage Escrow Account Act (the “Act”) for loans “granted or serviced” in Illinois that are secured by residential property located outside of Illinois, provided the Illinois law does not conflict with the law of the other state where the property or borrower is…
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We originated a business-purpose mortgage loan. The loan documents use two different loan officers’ NMLS identifiers, because a second loan officer took over the file after the original loan officer left our bank. Now, the secondary market investor is refusing to purchase the loan because of the discrepancy in NMLS identifiers. Do the NMLS identifier requirements apply to non-consumer loans?
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No, the requirements to use the NMLS identifier on loan documents and elsewhere do not apply to non-consumer loans. Regulation Z’s NMLS identifier requirements apply only to consumer credit transactions secured by a dwelling. Similarly, the SAFE Act’s NMLS identifier requirements apply only to originations of consumer-purpose residential mortgage loans. However, it is possible that…
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Does the Illinois Escrow Act apply to a second home that is owner-occupied?
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Yes, the Mortgage Escrow Account Act applies to a second home that is owner-occupied. The Act applies to any “mortgage on a single-family owner occupied residential property,” without differentiating between a first or second home. For resources related to our guidance, please see: Mortgage Escrow Account Act, 765 ILCS 910/4 (“On or after the effective…
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What is the statute of limitations for collecting on a mortgage loan? Are we required to notify a borrower that we will continue collecting on a loan after charging it off? Also, for how long should we continue to report a charged-off mortgage loan to consumer reporting agencies?
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The statute of limitations for collecting on a defaulted promissory note or foreclosing on the mortgaged property is ten years, though slightly different statutory provisions apply in either case. If you are collecting on the promissory note, the statute of limitations is ten years after the claim accrues. If you are foreclosing on the mortgaged…