Topic: Refinancing a Mortgage Loan
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Aside from ATR or QM issues, is there a state law that requires us to execute balloon loan renewals, extensions or modifications before the loan’s original maturity date?
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No, we do not believe that you are required to enter into a renewal, extension or modification before the loan’s original maturity date. Regulation Z distinguishes a “refinancing,” which could require a new set of disclosures, from other transactions, such as renewals, extensions and modifications, which do not require new disclosures. The general rule under…
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We have a residential loan with our bank that is being refinanced by our bank, and the three-day right of rescission (ROR) will apply to the refinancing. Can we collect interest on the original loan during the ROR period, as well as collect interest on the refinancing loan as of its closing date (which would mean collecting interest for both loans during the ROR period)? The funds for the refinancing loan would not be disbursed until after the ROR period expires.
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We believe this practice would be highly unusual and quite possibly could violate both loan agreements, as well as raise questions under both Illinois law and the federal UDAAP prohibitions. The crux of the problem is that interest begins accruing on the second loan before the second loan’s proceeds have been disbursed. Charging this interest…
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The IRS filed a tax lien on a property that secures a HELOC. The HELOC promissory note has a five year term (with extensions permitted), and the mortgage securing the HELOC has a twenty year term. Our lien predates the IRS lien, but now the five-year HELOC term is up. Is there a law that prohibits us from renewing the HELOC without entering into a new mortgage? We don’t want to lose our lien position.
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Yes, we believe that you may renew the HELOC without entering into a new mortgage or jeopardizing the priority of your lien. In order to preserve your lien position vis-a-vis the IRS, however, we do recommend entering into a loan renewal agreement with the borrower, as opposed to refinancing the loan. To establish that the…
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Can we make an additional advance on a closed-end mortgage loan and add the amount of this advance to the balance? Our security agreements permit us to make such an advance.
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Yes, you may add an additional advance to an existing closed-end loan. The question becomes whether the additional advance would require you to provide a new set of disclosures for the original loan. It depends on how the additional advance is structured. If the advance were to satisfy the existing obligation and replace it with…
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Are we required to include the homeowner’s insurance premiums line on Page 2 of the Loan Estimate in Section F (Prepaids) for refinances?
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Yes, you are required to include the homeowner’s insurance premiums line on Page 2 of the Loan Estimate in Section F for refinances. Regulation Z requires that a new set of disclosures be provided whenever there is a refinancing, and in the Prepaids Section of the Loan Estimate (Section F on Page 2), the rule…
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Are we required to complete a “net tangible benefit/anti-flipping” worksheet, on top of our other tests for compliance with HPML, HOEPA, HRHLA, QM, etc.?
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While there are no Illinois laws that expressly require you to use a net tangible benefit worksheet, we still would advise that you complete some sort of tangible net benefit analysis when refinancing mortgage loans secured by a borrower’s principal residence, in order to avoid a violation of the Illinois Fairness in Lending Act or…
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What Illinois laws or regulations will affect TRID implementation?
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While there are many potential intersections between the TRID rules and Illinois law, so far we have found three areas where it is necessary to consult Illinois law in order to comply with the TRID rules: (1) Under the upcoming TRID rules, the new Closing Disclosure must state whether a consumer “may remain responsible for…
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Before a fixed-rate balloon loan matures, we would like to extend the loan with a longer loan term and a higher interest rate. Are we required to treat this transaction as a refinancing?
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While there may be some arguments to the contrary, we believe the more prudent approach would be to treat the transaction as a refinancing requiring new disclosures, because the interest rate will be increased. Both the TILA and RESPA define “refinancing” as a transaction where an existing obligation is satisfied and replaced by a new…
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We are acquiring an institution that has three-year balloon loans. We would like to modify the notes by extending the balloon term to five years and changing the interest rate. Will new GFEs be required, or can we treat this as a modification?
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While we can provide you with some guidance on determining whether these changes will be considered a refinancing, the issue is very fact-specific, and absent more facts, we cannot advise as to whether a specific balloon loan term or interest rate change would be considered a modification or refinancing (the latter requiring new TILA and…
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We would like to renew our balloon loans that are maturing soon by raising the interest rates and extending the loan terms to thirty years. Do we need to treat these as refinances?
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While we can provide you with some guidance on determining whether a renewal will be considered a refinancing, the issue is very fact-specific, and we cannot advise as to whether a specific balloon loan modification would be considered a refinancing (subjecting the transaction to Regulation Z and the new ability-to-repay (ATR) requirements). The general rule…