Topic: Real Estate Settlement Procedures Act (RESPA)
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Our bank generally does not require consumers to set up an escrow account for a residential mortgage loan unless required by law. We have agreed to terminate an escrow account at the request of a borrower who voluntarily escrows funds for real estate taxes. Are we required to pay the escrow balance to the borrower after terminating the account? The borrower mentioned that they need the funds for a vacation, and we are concerned they will not be able to pay their property tax bill due next month. If the borrower is delinquent in paying their tax bill, our loan terms give us the right to require that an escrow account be reinstated.
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We recommend reviewing your loan terms and any escrow account agreement the borrower may have signed. If your agreement does not expressly grant your bank the right to retain the escrow account balance after the escrow is terminated, we recommend refunding the balance — as your failure to do so may be deemed an unfair,…
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We believe that creditors must request the six pieces of information constituting an application under Regulation Z in their online mortgage loan applications. However, our loan originators and vendors claim that it is a common practice for online applications to omit property address for purchases and property value for refinancings. Is this practice allowed by Regulation Z?
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We do not believe that creditors are required to collect the six items of information that make up an application all at once or in a single online form, as a creditor may collect the six items in the order that best suits its needs. Consequently, we believe that the practice of omitting certain data…
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If we are considered a mortgage broker under Regulation X, can we charge a reasonable fee for ordering appraisals and title work, pulling credit reports, and submitting applications to the correspondent bank that will serve as the lender? Do we need to include anything about acting as a mortgage broker in our lending policy?
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Yes, we believe you can charge a reasonable fee for services you perform as a mortgage broker, including ordering appraisals and title work, pulling credit reports, and submitting loan applications to the correspondent bank. We are not aware of any requirement to include information related to acting as a mortgage broker in your lending policy…
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A borrower died and their mortgage loan is now in default. The deceased borrower’s spouse resides in the home and is in title to the property but is not a borrower on the loan. We are aware that we cannot file a foreclosure action until the loan is 120 days delinquent. Are we required to send a notice of acceleration after the third missed payment, and can you provide a sample of such a notice?
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Whether a notice of acceleration is required generally depends on the terms of your loan agreement. However, if the mortgage loan is a “high risk home loan” as that term is defined in the Illinois High Risk Home Loan Act, you are required by statute to deliver a notice to the borrower informing them of…
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If we are merging two affiliated banks, are we exempt from the Real Estate Settlement Procedures Act (RESPA)’s mortgage servicing transfer notice requirements? We plan to continue accepting payments made in the acquired bank’s name and the payment address will not be changing. If we are exempt from RESPA’s notice requirements, is there a similar exemption under the Illinois Banking Act?
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Yes, we believe you would be exempt from providing notice of any mortgage servicing transfers resulting from the merger under RESPA if there is no change in account numbers or amount of payment due. Regulation X states that “a transfer that results from mergers or acquisitions of servicers or subservicers” are not considered transfers of…
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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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The Illinois Collateral Protection Act provides that we may require a final balloon payment to collect the costs of force-placed collateral protection insurance within thirty days after the last scheduled payment required by the credit agreement. If we choose to do this for an automobile loan for which we have issued a coupon book, do we need to send the borrower an updated coupon book?
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No, we do not believe you need to send an updated coupon book after force-placing collateral protection insurance for an automobile loan that will be repaid as a balloon payment at the end of the loan term. The Collateral Protection Act provides that pursuant to the terms of a credit agreement, creditors may require borrowers…
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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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We understand that under Regulation X, if an escrow account shortage is equal to or more than one month’s escrow payment, the servicer may either allow the shortage to exist or require the borrower to repay in equal installments over a 12-month period. Our escrow account statements also provide the option to pay the shortage in full without requiring it, but the regulations clearly state that the servicer cannot require or provide the option of a lump sum payment. Our core provider plans to remove the option and verbiage stating that the full shortage can be paid in full as a lump sum, but only after most of our accounts analyze for 2022. Will this be a compliance issue?
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Yes, we believe that Regulation X prohibits you from providing borrowers the option of paying an escrow account shortage greater than or equal to one month’s escrow account payment with a lump sum payment. Regulation X provides that if an escrow account analysis discloses a shortage that is greater than or equal to one month’s…
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Does Illinois law allow us to hire a real estate broker as a loan originator if the individual will not act in both capacities on a transaction? The employee will not be receiving any compensation for referring their clients to the bank, and the majority of the loans they will be working on are consumer purpose. We are a Federal Housing Administration (FHA)-approved lender.
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We are not aware of any law or regulation that would prohibit a bank employee from also working as a real estate broker in their free time, provided they do not receive any compensation for referring their clients to the bank, and provided that the employee does not act as both a real estate broker…