Topic: Mortgage Loans
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While reviewing our annual escrow analysis statements, we identified some statements that did not include the reasons why the estimated low monthly balance was not reached, as required by Regulation X. We determined that our statements omitted this minimum balance disclosure on the first annual escrow statement after origination or on loans acquired through a merger. Are there any exceptions to this disclosure requirement?
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No, we are not aware of any exceptions to the annual escrow statement requirement to disclose the reasons why the estimated low monthly balance was not reached, other than in circumstances in which the estimated low monthly balance was reached. If the low monthly balance was not reached, you must provide the reasons why by…
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Our bank issues balloon notes that we frequently extend on maturity. When considering an extension, our loan review policy requires us to examine the borrower’s credit (without obtaining their consent), and we have always run hard credit inquiries for these reviews. We would like to switch to using soft credit inquiries that do not appear on our customers’ credit reports. Are there any rules that would prohibit us from using soft credit inquiries for these reviews, and do we need the borrowers’ consent to pull their credit? An examiner once advised us to do credit checks before renewing loans, and an auditor recommended a hard credit pull for new loans, but a representative from the Federal Reserve said we could use soft credit pulls in this case.
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No, we are not aware of any law or regulation that would prohibit you from using “soft pulls” for your loan reviews conducted before renewing loans. We do not believe that you need to obtain borrowers’ consent when pulling credit for purposes of deciding whether to offer a loan extension for the balloon notes. Under…
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We want to partner with builders, sellers, and realtors to facilitate buydown subsidies that would temporarily decrease interest rates for our purchase mortgage loan borrowers. How should we disclose a buydown subsidy on the Loan Estimate (LE) and Closing Disclosure (CD)? We do not believe we need to include it on the LE, but it appears that we need to include it as a seller paid fee under Section H of the CD. Also, should we be concerned about potential fair lending violations since the subsidy is coming from a third party who may not offer it consistently to every borrower? Do you have any insight into how regulators view this type of product and what their expectations are?
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We believe a buydown subsidy should be disclosed as a “Seller Credit” in the “Summaries of Transactions” table on the CD. Also, we recommend conducting due diligence on any builders, sellers, and realtors before partnering with them to ensure that they will not be violating fair lending laws when offering the incentive. Regulation Z’s Official…
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When there is no title company serving as a settlement agent in a mortgage loan transaction, should we list our own information in the “Settlement Agent” blanks on pages 1 and 5 of the Closing Disclosure (CD), or leave them blank?
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We believe you should leave these spaces blank on the CD if there is no settlement agent involved in the mortgage loan transaction. Regulation Z states that for every closed-end consumer credit transaction secured by real property, the creditor shall disclose on page 1 of the CD, “[t]he name of the settlement agent conducting the…
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We have commercial mortgages on rental properties belonging to an LLC borrower. The LLC is creating two new subsidiary LLCs and transferring title to the properties to these subsidiaries. The indebtedness will stay with the parent LLC, but the deeds to the properties will reflect that the two new child LLCs have title. Will this affect our mortgages on the properties? We want to avoid having to refinance these mortgages.
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No, we do not believe that the transfer of title to these subsidiaries will affect your right to collect on your promissory note or foreclose your mortgages on the rental properties. We believe the terms of your promissory notes will continue to be enforceable against the parent LLC after the transfer of title, as you…
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An FDIC examiner has advised us that if we have any loans with an exception (such as a loan-to-value (LTV) or debt-to-income (DTI) ratio exception), we need to notify our Board of the exception. Is this accurate? Our board would have already approved the loans.
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We are not aware of any requirement to notify your board of directors of individual loans with LTV or DTI ratio exceptions after the loans have been approved. However, you are required to report the aggregate amount of loans with LTV ratios that exceed the statutory LTV limits to your board, at least quarterly. The…
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Do you have a checklist for taking an impaired loan from the demand letter through finality, such as a foreclosure?
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We do not have such a checklist in our forms library, and we recommend consulting with your bank’s outside counsel on the timing and steps involved in collecting an impaired loan and particularly the mortgage foreclosure process for delinquent mortgage loans. For general reference, we have included a link to the Illinois Legal Aid lawyer…
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Does our mortgage covering manufactured homes and the underlying land need to include a description of the manufactured homes with the legal description? The manufactured homes have been converted to real property.
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We are not aware of any law requiring a legal description to reference manufactured homes that have been converted to real property. However, if your title company recommends including such a reference in the legal description, we are not aware of any reason to reject their recommendation. Additionally, secondary market purchasers of the mortgage loan…
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A borrower obtained a closed-end line of credit from us secured by a manufactured home community. The borrower intends to use the line of credit to purchase manufactured homes and place them in empty lots in the manufactured home community securing the line of credit. If the borrower is unable to sell the manufactured homes outright, they will obtain a closed-end loan from us secured by the manufactured home, and their line of credit will be paid down in an amount proportional to the closed-end loan. Would the line of credit be exempt from HMDA reporting as temporary financing? Also, if the borrower pays off the line of credit with a new line of credit secured by the same manufactured home community, would this be HMDA reportable?
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We believe that the line of credit is HMDA reportable, as the temporary financing exception would not apply to the loan you described. Additionally, we believe your new line of credit would be a HMDA reportable “refinancing.” Business or Commercial Purpose Exception Regulation C states that a closed-end mortgage loan or an open-end line of…
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Our mortgage department has asked if we must have borrowers execute a document at closing indicating whether they accept or reject the use of a time deposit account in lieu of an escrow account if we do not provide borrowers with this option. Also, are we required to provide borrowers with a copy of the Illinois Mortgage Escrow Account Act and have them sign an Illinois Escrow Account Disclosure Agreement at closing? These documents and disclosures are referenced in Illinois administrative rules at 38 Ill. Adm. Code 1050.1360 and 1050.1110(f).
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As a preliminary matter, we note that the administrative rules referenced in your question apply only to mortgage brokers subject to the Residential Mortgage License Act of 1987, which does not apply to banks. However, banks are subject to the Illinois Mortgage Escrow Account Act, which applies to all mortgage lenders that extend or service…