Topic: Refinancing a Mortgage Loan
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We provide the escrow disclosure required by the Mortgage Escrow Account Act for all mortgage closings, whether purchases or refinances. Are we required to provide this for refinances, or only for purchase transactions?
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We believe that the escrow disclosure required by the Mortgage Escrow Account Act is required only for purchase transactions. The Act’s requirements, including the escrow disclosure requirement, apply only to mortgage lenders that are extending a loan or servicing a loan “for the purpose of enabling another to purchase a residence” (specifically, a “single-family owner…
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We have a home equity line of credit (HELOC) that was taken out jointly by a married couple. The couple is separated (not yet divorced), and the wife would like to refinance the HELOC. The husband is not on the deed to the house securing the HELOC. Does the husband need to sign the mortgage, right of rescission notice, Truth in Lending disclosures, or the homestead waiver? Is Illinois a community property state?
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No, Illinois is not a community property state. In this case, because the husband is not the borrower and is not on the title to the property securing the HELOC, we believe that his signature is required only regarding any waiver of his homestead rights. However, we do recommend checking with the secondary market purchaser…
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Will vacant lot loans be covered by the updated Military Lending Act rules that become effective on October 3, 2016?
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Yes, the amended Military Lending Act rules will cover a consumer-purpose loan secured by a vacant lot, unless the loan purpose is to finance the initial construction of a dwelling on the vacant lot. In general, the amended Military Lending Act rules cover all consumer-purpose loans, with several specific exemptions, including an exemption for residential…
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Can we modify a matured loan? In some cases, a loan matures and then we perform a collateral review and pull credit and wish to modify the loan. Is that permissible?
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Yes, you may modify a matured loan (unless some provision in the loan agreement prevents you from modifying the loan’s terms). In addition, if you structure the loan modification documents correctly, it may fall outside of Regulation Z’s definition of a “refinancing,” eliminating the need to provide new loan disclosures. The Seventh Circuit has considered…
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We closed on a mortgage loan refinancing on July 1, and the borrower asked us to lower the interest rate on July 5. We refused, and the borrower is threatening to rescind the transaction on the last day of the right of rescission period — July 6. If the borrower reapplies for the refinancing after rescinding, can we reject the customer’s application?
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Yes, we believe that you may reject the customer’s application, which will require you to provide an appropriate adverse action notice. Regulation B does not prohibit a creditor from rejecting an applicant due to the applicant’s previous exercise of the right of rescission. Regulation B permits creditors to consider “any information obtained” in connection with…
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Under the TILA-RESPA Integrated Disclosure (TRID) rules, when is a mortgage considered consummated? Does the answer differ for purchase money loans versus refinancings?
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Under Illinois case law, a mortgage loan is consummated on the date of the loan closing (whether a purchase money loan or a refinancing). A number of Illinois courts have held that consummation occurs on the date of the loan closing for purposes of the TILA and Regulation Z. For resources related to our guidance,…
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A borrower is refinancing her first mortgage with us in order to pay off a personal loan from another bank. For HMDA reporting, based on the purpose of the transaction, should the loan be considered a purchase loan or a refinance? We also note that the original mortgage was in the name of the customer, but the refinancing will be in the name of her revocable living trust, with the customer signing as the trustee.
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In our view, the transaction does not satisfy the definition of either a purchase loan or a refinancing under Regulation C and likely is not reportable under HMDA. HMDA requires lenders to report demographic data on certain types of transactions, including home purchase loans, home improvement loans, and refinancings. A home purchase loan is a…
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We are in the process of modifying an existing home equity balloon loan to extend the term from five years to ten years and to begin amortization. The loan has matured. Can we modify the loan without providing the new TRID disclosures, or should we treat it as a refinancing?
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We believe that you may renew a balloon loan after its maturity date without it falling within Regulation Z’s definition of a “refinancing” (which would require new disclosures under the TRID requirements). However, the language that you use in the loan modification documents is important in order to achieve this result. The Seventh Circuit has…
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We have a customer with an existing balloon mortgage loan that was originated in 2008 and is coming up for renewal soon. If we renew this loan, will it fall under the TRID requirements?
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We believe that you may renew a balloon loan before its maturity date without it falling within Regulation Z’s definition of a “refinancing” (which would require new disclosures under the TRID requirements). However, the language that you use in the loan modification documents is important in order to achieve this result. The general rule is…
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Our bank made a closed-end construction loan to a borrower. The loan was not intended to convert to permanent financing after construction was complete. However, now that construction is complete, the loan has a remaining balance of $100,000. The loan is up for renewal, and we would like to change the terms from a variable rate to fixed rate and from interest only payments to principal and interest payments. Can we issue a change in terms without issuing a new loan?
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Whether a subsequent transaction related to the same loan should be treated as a new loan depends on the specific facts, including consideration of the original and any subsequent loan documents. In this situation, for the reasons discussed below, we believe that the continuation of the extension of credit should be treated as a new…