Topic: Higher-Priced Mortgage Loans (HPMLs)
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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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We assess a “fax/email” fee when sending payoff statements for home equity lines of credit (HELOCs). When disclosing this fee at origination, is it sufficient to state that the fee will be charged, or do we need to provide the amount of the fee in the disclosure? We will ensure that the fee we assess is reasonable given the CFPB’s scrutiny of “junk fees.”
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We recommend disclosing the amount of the fax/email fee at origination if it is known. Although Regulation Z does not expressly require creditors to disclose the amount of fees associated with payoff statements, it does require you to explain how the fee amount will be determined. For HELOCs, Regulation Z requires creditors to disclose an…
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Is there a model Illinois Mortgage Escrow Account Act notice (advising borrowers that they may terminate their escrow account when certain conditions are met) that also references Regulation Z’s additional requirements for canceling escrow accounts associated with higher-priced mortgage loans (HPMLs)? Can we modify our current notice to reference Regulation Z’s HPML escrow cancellation requirements?
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No, we are not aware of a model Illinois Mortgage Escrow Account Act notice that references Regulation Z’s additional requirements for canceling escrow accounts associated with HPMLs, but we submitted a request for such a notice to our Compliance Division Advisory Committee and will provide any responses we receive. Additionally, we believe you may modify…
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Does a mobile home loan need to comply with Regulation Z’s higher-priced mortgage loan (HPML) and ability-to-repay (ATR) requirements even if the mobile home is not affixed to land? If yes, how do we show compliance? Our mobile home loan is secured by only a promissory note with title and is not secured by a mortgage.
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Yes, we believe that a loan secured by a mobile home used as a residence must comply with Regulation Z’s HPML escrow and ATR requirements, even if not affixed to land. However, we do not believe a loan secured by a mobile home needs to comply with Regulation Z’s HPML appraisal requirements. Under Regulation Z,…
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Is there an escrow requirement when a small lender refinances a higher-priced mortgage loan (HPML)? We have a loan for which an escrow was not established at origination that now qualifies as an HPML. Also, would the HPML escrow requirement apply to the refinancing of a business purpose loan secured by a principal dwelling?
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We believe that a small creditor would be subject to Regulation Z’s escrow requirement when refinancing an HPML, unless an exception applies, as discussed below. However, the HPML escrow requirement would not apply to the refinancing of a commercial purpose loan, since the HPML regulations apply only to consumer loans. Regulation Z defines an HPML,…
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Can a small lender extending a higher-priced mortgage loan (HPML) under $250,000 use a broker price opinion or in-house valuation, or is an appraisal required?
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Appraisals are required for HPMLs unless an exception applies, as discussed below. Regulation Z generally requires lenders to obtain written appraisals for HPMLs, but it contains eight exceptions to the HPML appraisal requirement. Exceptions include loans that meet the criteria for a qualified mortgage (QM) loan, loans that do not exceed $27,200, loans secured by…
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Do the escrow requirements for higher-priced mortgage loans (HPML) apply to both property taxes and insurance? Or can a borrower with an HPML escrow only for taxes?
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Regulation Z’s escrow requirements for HPMLs generally apply to both property taxes and insurance, subject to the exceptions below. Regulation Z provides that a creditor may not extend an HPML “secured by a first lien on a consumer’s principal dwelling unless an escrow account is established before consummation for payment of property taxes and premiums…
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We require escrow accounts for higher-priced mortgage loans (HPMLs) but not for other residential mortgage loans. Must we provide the Illinois Mortgage Escrow Account Act notice for those non-HPMLs if we maintain the right to establish escrow accounts under certain circumstances? Does the Mortgage Escrow Account Act apply only to purchase transactions (as opposed to the permanent phase of a bridge loan or a construction loan)? For HPMLs, if a borrower asks to cancel the escrow account after five years and we reject this request, do we have to allow the borrower to cancel the escrow account when 65% of the loan payments have been made? Also, does the Mortgage Escrow Account Act supersede Fannie Mae’s escrow account guidelines for non-HPML loans that we service?
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The Illinois Mortgage Escrow Account Act (Act) notice generally is required at the closing of any mortgage loan made for the purpose of purchasing a single-family owner occupied residential property. Consequently, we believe your bank should provide this notice at every loan closing for a single-family owner occupied residential property in which your bank retains…
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We have a customer who applied for a home equity loan secured by a first lien. Our mortgage system alerted us that the loan is a higher-priced mortgage loan (HPML). We are aware that under Regulation Z, a lender may not extend an HPML unless an escrow account is established for the payment of property taxes and insurance, and the escrow account must be maintained for at least five years. However, our loan department has advised that under Illinois law the escrow account may be discontinued when the loan balance has been paid down to 65% of the original balance. Does this apply to HPMLs?
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No, for HPMLs, federal law generally requires that escrow accounts remain in place for five years, even when Illinois law otherwise would permit the borrower to terminate the escrow account. You are correct that under Regulation Z, a lender generally cannot extend an HPML secured by a first lien on a consumer’s principal dwelling unless…
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Are we correct that for rural banks, the threshold for higher-priced mortgage loans is the average prime offer rate (APOR) plus 3.5%, as long as we keep the loans in portfolio?
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Yes, there is a special higher-priced mortgage loan (HPML) threshold for “small creditors,” but only for purposes of the Qualified Mortgage (QM) rule. For QM rule purposes, there is a special definition of “higher-priced,” which sets a threshold of 3.5% over the APOR for first-lien QM loans — provided that the QM lender qualifies as…