Topic: Mortgage Loans
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If we begin to offer FHA loans through our secondary market correspondent bank — with the correspondent bank funding the loans and closing the loans in its name — would we be considered a broker? We would order the appraisal and title work, pull credit reports, and submit the applications to the correspondent bank, which would make all decisions as to the application. If we are a broker, what compliance considerations do we need to be aware of?
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Yes, we believe you would be considered a mortgage broker in this scenario, which Regulation X defines as “a person (other than an employee of a lender) that renders origination services and serves as an intermediary between a borrower and a lender in a transaction involving a federally related mortgage loan.” Below is a non-exhaustive…
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Are e-signed loan documents valid and enforceable if they are signed after the date entered on the note or signed with a name other than the borrower’s full legal name? For example, a borrower electronically signs a note dated October 25 on October 26, or a note referencing a borrower named “Jonathan Doe” is electronically signed with the name “John Doe.”
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Electronic signatures generally are valid on most loan documents in Illinois, and we do not believe that signing a document after its stated date or with a shortened version of the borrower’s full legal name would invalidate the document. However, special requirements apply to electronic promissory notes that are negotiable instruments, as discussed in more…
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Do we need to determine whether a loan will be considered a higher-priced mortgage loan (HPML) when modifying the loan with a change-in-terms agreement? We have a borrower with a balloon note that is maturing soon, and we are trying to determine whether to modify the loan or refinance it. If we refinance the loan, the fees will be higher, and we would require an escrow account as the loan likely would qualify as an HPML.
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No, we do not believe you need to determine whether an existing loan would be considered an HPML when merely modifying, and not refinancing, the loan. However, you are correct that you would need to make this determination if the loan is refinanced — unless an exception applies, as discussed below. The Federal Reserve Board…
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We extended a consumer mortgage loan to two individuals, who own the property securing the mortgage loan. Their homeowner’s insurance lists the insured as two different individuals with the borrowers listed as additionally insured. Can we prohibit other parties from being named as insured or additionally insured?
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Yes, a bank may dictate reasonable insurance requirements for loan collateral, including the prohibition or limitation of additional insureds on hazard insurance policies securing the loan collateral. Requirements for homeowner’s insurance (or “hazard insurance”) likely would be spelled out in your loan agreement or the mortgage instrument. For example, Fannie Mae’s standard security instrument for…
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Could it be considered discriminatory to refuse accounts for nonresident aliens because they do not have a social security number (SSN) or individual tax identification number (ITIN)? Are you aware of any sample forms or guidance related to conducting enhanced due diligence on nonresident aliens?
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Opening accounts for nonresident aliens is a business decision dependent on the amount of risk that your institution is willing to accept. FinCEN’s Customer Identification Program (CIP) requirements for non-U.S. persons include the collection of (among other things) either a customer’s “taxpayer identification number; passport number and country of issuance; alien identification card number; or…
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How should we report mortgage interest paid by nonresident aliens to the IRS?
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The IRS provides guidance for reporting mortgage interest paid by nonresident aliens within the United States in its instructions for Form 1098. For mortgage loans secured by property located in the United States, you must request a Form W-8 and report the interest based on the payer’s applicable Form W-8. If the interest is paid…
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Are there any best practices related to renewing loans that have matured? Do these practices differ if the loan has 1–4 family real estate attached? Also, are there any best practices related to backdating an application date so that it matches the loan maturity date?
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We are not aware of any guidance related to best practices for renewing loans that have matured or backdating an application so that it matches the loan’s maturity date. However, when renewing a loan, you should be aware of how Regulations Z and C distinguish between renewals and refinancings. For consumer credit transactions secured by…
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The Illinois High Risk Home Loan Act states that certain bona fide discount points can be excluded from the points and fees calculation when determining whether a loan meets the definition of “high risk home loan,” provided that any interest rate reduction purchased with the discount points is “reasonably consistent with established industry norms and practices for secondary mortgage market transactions.” What does this phrase mean?
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The High Risk Home Loan Act does not elaborate on the meaning of “reasonably consistent with established industry norms and practices for secondary mortgage market transactions.” However, the phrase is used in Regulation Z’s Official Interpretations, which do provide further guidance on the meaning of this term. Regulation Z’s Official Interpretations state that to satisfy…
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Our bank has a wholly-owned mortgage subsidiary that originates residential mortgage loans. Once a loan is originated, a secondary market investor purchases the loan, and we purchase the servicing rights. Would we be subject to the Fair Debt Collection Practices Act (FDCPA) when attempting to collect this debt? Would the exception to the definition of “debt collector” related to common ownership apply since our bank would be collecting on a loan originated by our subsidiary?
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No, we do not believe your bank would be subject to the FDCPA, provided that you began servicing the loan before default occurs. The FDCPA applies to “debt collectors,” defined in Regulation F as “any person . . . who regularly collects or attempts to collect, directly or indirectly, debts owed or due, or asserted…
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We were notified during a recent audit that “recent information indicates that mortgage loans made in Arizona, Nevada, New Jersey, Hawaii or Ohio by organizations without a physical presence in that state may not have a valid lien by state legislation.” We currently have two mortgages in Arizona and do not have a physical presence in that state. Is it true that our liens are invalid because we do not maintain a physical presence in Arizona?
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While we are not experts on the laws of states other than Illinois, we do not believe your Arizona mortgages would be considered invalid solely because you do not maintain a physical presence in Arizona. That said, we strongly recommend reviewing any concerns about your lien status with bank counsel. We do not believe that…