Topic: Refinancing a Mortgage Loan
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We made a commercial construction loan that converted to a closed-end mortgage loan with a balloon payment. The loan was for the construction of a condo unit that the developer initially intended to sell or rent out for income. After origination, the developer decided to move into the property as their primary residence. The loan is now reaching maturity. Can we extend the maturity date without triggering the requirement to provide TRID disclosures?
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We believe you may modify the mortgage loan to extend the maturity date without providing disclosures under the TILA-RESPA Integrated Disclosure (TRID) rule, provided that you do not satisfy and replace the existing mortgage loan with a new transaction. Under Regulation Z, if a business purpose loan is later rewritten for consumer purposes, “[s]uch a…
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Do we need to complete a “Net Tangible Benefit Form” under the Illinois Fairness in Lending Act and Illinois High Risk Home Loan Act when refinancing a home loan, even if we are not the original creditor? Does the Illinois Fairness in Lending Act’s net tangible benefit requirement apply to all financial institutions in Illinois, or does the collateral property’s location matter? If we decide to refinance a home loan that we did not originate, how can we ensure that the refinance is beneficial when we have limited knowledge of the original loan? Typically, we are not aware of the original loan’s interest rate when considering a refinancing application.
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While you are not required to use a particular form, we recommend conducting some kind of net tangible benefit analysis when refinancing mortgage loans secured by a borrower’s principal residence to ensure you are complying with the Illinois Fairness in Lending Act and Illinois High Risk Home Loan Act (if the loan is considered “high…
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If a consumer balloon mortgage is past maturity and we extend the maturity date, increase the fixed interest rate, and charge a small fee, can we consider this a modification instead of a new transaction requiring new disclosures (i.e., a refinancing)? Does it make a difference if the loan is past maturity? We do not want to replace the original loan.
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Yes, we believe you may extend a consumer balloon mortgage, increase the fixed interest rate, and charge a small fee without the transaction being considered a refinancing requiring new disclosures, provided that your modification agreement does not satisfy and replace the existing mortgage loan with a new transaction. Further, we do not believe this answer…
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Can we use a change in terms agreement to extend the term and increase the interest rate on a consumer balloon mortgage that is reaching maturity without the transaction being considered a refinancing? The interest rate is currently fixed and will continue to be fixed after the increase. Would the answer change if we extend and increase the interest rate after a consumer home equity line of credit (HELOC) has already matured? If allowed, what must be addressed or disclosed within the change in terms in addition to the new rate?
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Yes, we believe you may extend and increase the fixed interest rate on a consumer balloon mortgage without the transaction being considered a refinancing, provided that your modification agreement does not satisfy and replace the existing mortgage loan with a new transaction. Further, we do not believe this answer would change if you extend and…
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Is there an Illinois law requiring a “Net Tangible Benefit Form” when refinancing a mortgage? If so, does this apply only to banks of a certain size? The new software we are using is asking for this.
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Two Illinois laws require, in certain circumstances, an analysis of whether a refinancing would result in a tangible net benefit, which may be why your software requires the completion of a “Net Tangible Benefit Form” when refinancing a mortgage. Both laws apply to all institutions, regardless of size. The Illinois Fairness in Lending Act prohibits…
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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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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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We are extending a closed-end mortgage loan secured by a second lien on a home (we have the first lien as well). Should we use the right of rescission notice contained in model form H-8 (General) or H-9 (Refinancing With Original Creditor)? Our Loan Department thinks we should use form H-9 because the extension of new money can be thought of as a refinance, even though we identified the transaction as a home equity loan, not a refinance, on our TRID disclosures.
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We do not recommend using form H-9 unless the transaction is satisfying and replacing your original loan and meets the definition of a “refinancing” under Regulation Z. Whether a transaction is considered a “refinancing” depends on the specific circumstances of the second lien and your contract with the borrower. Under Regulation Z, a refinancing occurs,…
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A customer who obtained a manufactured home loan at a different institution would like us to refinance the loan. Can we do this if the manufactured home that secures the loan has not been converted into real property? The new manufactured home loan disclosure required under the Consumer Fraud and Deceptive Business Practices Act implies that we cannot.
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We are not aware of any law or regulation that would prohibit you from refinancing a loan secured by a manufactured home that has not been converted into real property — provided that the terms of your customer’s note do not prohibit refinancing. The Consumer Fraud and Deceptive Business Practices Act was amended last year…
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We are refinancing a mortgage loan secured by the primary dwelling of a non-married couple who are living together. Only one of the two has signed the mortgage and deed, but both will be signing the note for the refinancing. We know that the borrower who appears on the deed should sign the right of rescission, but should the other, non-owner borrower sign the right of rescission as well?
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We do not believe that the non-owner borrower should receive notice of the right of rescission required by Regulation Z. To be considered a “consumer” entitled to a right of rescission under Regulation Z, a person must have an ownership interest in the dwelling that is encumbered by the creditor’s security interest. As the individual…