Topic: Tangible Net Benefit Test
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Our bank partners with a third-party originator that refinances home mortgage loans. We underwrite these refinancings and purchase the loans from the third-party after the closing. Do we need to complete a “Tangible Net Benefit Form” when purchasing these loans, even though we are not considered the lender when the loan closes? Because we prepare closing documents on behalf of the third-party originator, should we be completing the “Tangible Net Benefit Form” for them? Also, would we be violating any law or regulation if we refinance a mortgage without completing a “Tangible Net Benefit Form” to remove a borrower due to a divorce? If this occurs, would we be protected if we keep the divorce decree on file to show that the refinance was justified?
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Because the Illinois Fairness in Lending Act applies to any entity that “assists” with a refinancing, we recommend working with your third-party originator to ensure that their refinancings result in a tangible net benefit to the borrower if you will be assisting in the refinancings and receiving related fees. The Illinois Fairness in Lending Act…
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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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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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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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A loan officer is trying to help a customer refinance a loan with our bank. The customer originally had an interest-only loan with his parents. The customer is now the sole owner of the home. The customer’s current bank told us that the customer cannot refinance the loan because there’s a new law stating that the customer must own the home solely for at least a year before he can refinance the loan.
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We are not aware of any new laws imposing ownership requirements before a borrower can refinance a mortgage loan. Perhaps you can get more details from the customer, or ask the customer to ask the bank to be more specific. It is possible that the customer is referring to a requirement in the Illinois High…
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Is a tangible net benefit form required for all refinances?
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A “tangible benefit” test is required under the Illinois Fairness in Lending Act and under the Illinois High Risk Home Loan Act, though both laws have slightly different tests. The Illinois Fairness in Lending Act prohibits several lending practices, including “loan flipping.” 815 ILCS 120/3. The definition of “loan flipping” includes a tangible net benefit…