Topic: Mortgage Loans
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Do we need to record a new mortgage every time we modify a loan?
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Deciding whether to record a new mortgage whenever the bank makes a loan modification will depend on the specific facts of each situation. We can provide a framework for analyzing the issue, but we cannot state whether or not to record a new mortgage in every loan modification situation. Under applicable Illinois law, if the…
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If we purchase the assets of a failed bank through the FDIC, do we have to send the Regulation Z Notice of Mortgage Transfer to borrowers?
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We believe that a bank would have to send Regulation Z mortgage transfer disclosures after acquiring residential loans through an FDIC purchase and assumption transaction. As stated in the rule commentary, “[d]isclosures are required under this section when, as a result of a merger, corporate acquisition, or reorganization, the ownership of a mortgage loan is…
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Can we charge a lien release fee on mortgage loans, and how much can we charge?
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The Illinois Mortgage Act provides lenders with three alternative methods of releasing a mortgage (765 ILCS 905/2): Delivering the release to the county recorder. *If the bank will be delivering the release to the county recorder, we recommend including the following statement on payoff statements: “Notice to All Persons: ___________(“Lender”) objects to the filing of…
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Can we charge a loan payoff processing fee?
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We do not believe that there is any restriction on charging a payoff processing fee, on the condition that the customer contracted to pay such a fee in your loan agreement. Section 4.1 of the Interest Act appears to prohibit such fees on revolving credit lines, as it states that lenders must pay “all expenses,…
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Because the OTS has stopped publishing its cost of funds (COF) indices, what should we use as a substitute index?
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The Federal Cost of Funds Index, or the FHLB’s 7th District Quarterly Index, may be the best replacements for the regional index you were using. When the OTS stopped publishing its cost of funds indices (due to its elimination under the Dodd-Frank Act), it issued a notice explaining that it would no longer be publishing…
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How can we determine whether a loan was a refinance or a renewal?
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The question of whether a second transaction was a “refinance” depends on an examination of the loan documents. The laws and regulations that would apply are as follows: Regulation Z and the RESPA regulations state that a refinancing occurs only when an existing obligation is “satisfied and replaced by a new obligation undertaken by the…
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Is a loan for the initial construction of a home is excluded from the Illinois High Risk Home Loan Act?
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We do not believe that an initial construction loan secured by a borrower’s primary residence would fit into the current High Risk Home Loan Act’s definition of a “high risk home loan.” 815 ILCS 137/10. Currently, that definition would include any “home equity loan,” meaning “any loan secured by the borrower’s primary residence where the…
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Is a tangible net benefit form required for all refinances?
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A “tangible benefit” test is required under the Illinois Fairness in Lending Act and under the Illinois High Risk Home Loan Act, though both laws have slightly different tests. The Illinois Fairness in Lending Act prohibits several lending practices, including “loan flipping.” 815 ILCS 120/3. The definition of “loan flipping” includes a tangible net benefit…
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Can we allow customers to open their escrow accounts at other banks?
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While the Mortgage Escrow Account Act does require that an account pledged in lieu of an escrow account must be “with the mortgage lender,” there is no similar requirement that applies to ordinary escrow accounts. 765 ILCS 910/6. If your loan documents allow escrow accounts to be maintained at outside banks, and if you follow…
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If a customer chooses to open an “interest bearing time deposit” account in lieu of an escrow account, does that have to be a certificate of deposit or could it be a regular savings account (without any premature withdrawal penalties)?
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The Act does not define the term “interest bearing time deposit.” Therefore, we must interpret the term by its plain language, keeping in mind that the purpose of that section is to allow borrowers to benefit from the interest earned on the money held for payment of taxes. Stern v. Norwest Mortgage, Inc., 179 Ill.2d…