Topic: Refinancing a Mortgage Loan
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We are a national bank, and we offer escrow accounts to mortgage loan customers who request them. Are we required to provide the Mortgage Escrow Account Act disclosure at closing for refinance transactions on owner-occupied residential real estate, or is it required only for purchase money transactions?
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The Illinois Mortgage Escrow Account Act applies only to mortgage loans secured by owner-occupied, single-family residential real estate, when made “for the purpose of enabling another to purchase a residence.” Consequently, we do not believe that the law would apply to a refinance transaction, since it would not be made for the purpose of purchasing…
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We have a request to add money to a balloon mortgage loan balance to pay for roof repairs. If the payment amount and interest rate remain the same, can we add to the loan balance without structuring the transaction as a refinancing?
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We believe that you may modify this loan without treating the transaction as a refinancing, and whether your bank chooses to structure this transaction as a modification or as a refinancing is a business decision. If your bank wishes to structure this transaction as a modification (which would not require new set of Regulation Z…
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We have a closed-end loan that is close to its maturity date. If we renew the loan and treat it as a change in terms before the maturity date, rather than as a refinance, would that trigger the TRID requirements? Also, can we charge a flood certification fee and other, non-APR fees, such as a credit report, appraisal, and title examination fee?
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No, we believe that you may renew a loan without triggering the TRID requirements under Regulation Z — and this is the case whether the renewal is executed before or after the loan’s original maturity date. However, the language that you use in the loan renewal documents must be carefully structured in order to achieve…
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Can we disburse new funds on a closed-end commercial loan through a loan modification? For example, if a commercial customer has secured a $100,000 loan and pays down $20,000, can that customer later receive another $10,000 disbursement on the same loan through a modification?
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We are not aware of any laws that would prohibit modifying a commercial loan to allow for additional disbursements, but we recommend consulting with bank counsel to address certain risks created by this type of modification. At the outset, it would be prudent to ensure that either your original security agreement or your modification documents…
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We have a business purpose loan that we are going to refinance, with cash out to improve the business (a restaurant). The collateral for the existing loan and the refinance is an assignment of beneficial interest in a land trust, which contains two restaurants and a single-family dwelling. Is this reportable under the Home Mortgage Disclosure Act (HMDA) in 2018?
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Yes, we believe that this dwelling-secured loan is reportable under the new HMDA rules that became effective in 2018. We believe that a loan secured by an assignment of a beneficial interest in a land trust should be treated as secured by a dwelling, provided that the land trust holds a dwelling. Under the new…
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Some of our home mortgage customers “refinance” their loans and use some of the proceeds to improve their current residence or purchase a different property. Our loan document specifically states that the transaction “does not satisfy and release” the original loan note. Are these transactions reportable under HMDA?
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No, we do not believe that these transactions are reportable under the Home Mortgage Disclosure Act (HMDA) and Regulation C, because they are not “extensions of credit.” The HMDA and Regulation C require your bank to report closed-end and open-end extensions of credit. The official interpretations in Regulation C clarify that a modification, renewal, extension,…
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Does a request for a modification of an existing loan constitute an “application” under Regulation B, triggering the requirement to send an appraisal notice within three business days? Typically, our modifications involve extending the maturity date or lowering interest rate.
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The answer depends on the specific type of modification and how the request is made. Regulation B’s appraisal notice requirements apply whenever you receive an application for an extension of credit secured by a first lien on a dwelling. Therefore, you must determine whether each modification request involves an “application” for an “extension of credit.”…
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We have a commercial loan for which we required a dwelling as additional collateral. We did not report the loan on our HMDA loan application register (LAR) because the loan purpose was not to purchase or improve the dwelling. If we refinance this loan and again require the dwelling as additional collateral, is the loan reportable under HMDA as a refinance?
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Yes, this loan would be reportable as a refinancing under Regulation C. Under the current version of Regulation C, a refinance is reportable under the Home Mortgage Disclosure Act (HMDA) if both the existing and new obligation are secured by liens on a dwelling. As stated in FFIEC Guidance, “[t]he purpose of the loan being…
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Do the TILA-RESPA Integrated Disclosure (TRID) rules require disclosures for a consumer-purpose, construction-only loan to build a home from the ground up, where the borrower will obtain permanent financing at a later date? What if we extend the maturity date for this loan without extending new money or changing any other terms? Also, would this loan be reportable under the Home Mortgage Disclosure Act (HMDA)? Would the extension be HMDA reportable?
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TILA-RESPA Integrated Disclosure (TRID) Requirements Yes, the TRID disclosures are required for closed-end, consumer-purpose construction loans secured by real property. However, whether they would be required when you extend the term of an existing loan depends on the language you use in the extension agreement. TRID disclosures are required for existing loans only when they…
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Are borrowers required to purchase their residence at least six months before they are eligible for a cash-out refinance? Is a “24 month chain of title” required on title commitments for cash-out refinances?
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We are not aware of any law or regulation that requires a borrower to have purchased their property at least six months before obtaining a cash-out refinancing. Likewise, we are not aware of any requirement for a lender to obtain a “24 month chain of title” report prior to a refinancing. However, we do note…