Topic: Truth in Lending Act (TILA)
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We have a producing manager on our mortgage team. Can we pay them a commission based on the loan volume that their team produces, as well as a commission based on the loan volume they individually produce?
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Yes, we believe that your bank may compensate loan originators based on their individual loan volume and their team members’ loan volume. Regulation Z prohibits loan originator compensation that is based on the terms of the transactions that they originate. But this prohibition does not apply to compensation based on an individual loan originator’s loan…
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We would like to waive our upfront costs for HELOC borrowers. However, some borrowers use the account as a short-term bridge loan and pay the loan off when their home sells, usually in the first year of the loan. Would we violate the Illinois Interest Act if we charge those waived costs on payoff of these loans?
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No, we do not believe you would be violating the Illinois Interest Act if you charge HELOC borrowers for waived, upfront costs on an early payoff, if agreed to in the loan agreement, but such charges could implicate the restrictions on prepayment penalties under Regulation Z and the Illinois High Risk Home Loan Act for…
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If a mortgage loan borrower intends to rent their property out but also will live there for more than fourteen days, would the loan be considered “consumer credit” for TRID purposes since it does not qualify as non-owner-occupied rental property?
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We do not believe that a loan automatically is considered consumer credit under Regulation Z if the borrower intends to rent out the property but also live there for more than fourteen days in the coming year. The official commentary to Regulation Z establishes a special rule for non-owner-occupied rental property, providing that “[c]redit extended…
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Do we have to follow the TRID requirements for a consumer loan secured by ten acres of property and a cabin with no indoor bathroom that will be vacant 95% of the time? The borrower intends to visit the property only a few times a year to get out of the city and fish and will not be using the cabin as a personal residence. However, the borrower may rent it out through Airbnb at some point in the future.
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We believe you must provide the borrower with disclosures under the TILA-RESPA Integrated Disclosure (TRID) rule. Regulation Z requires creditors to provide borrowers with a loan estimate and closing disclosure under the TRID rule for each “closed-end consumer credit transaction secured by real property or a cooperative unit, other than a reverse mortgage.” It is…
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We have a mortgage loan borrower that is delinquent in paying their real estate taxes for a consumer loan secured by their principal dwelling. We want to make a protective advance to pay off the delinquent taxes, which will involve increasing the principal balance of the mortgage loan and re-amortizing it. Are there any timing or disclosure requirements that apply? Are we limited to just the current delinquent amount? Does the borrower have a right of rescission in this scenario?
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We are not aware of any law or regulation expressly addressing when and how a mortgage lender may advance funds to protect their interest in collateral. Accordingly, we believe whether you may make such an advance (and any related procedures) will depend on the terms of your agreement with the borrower. For example, Fannie Mae’s…
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Our bank owns a service provider that charges a fee for processing our customers’ online loan payments. Should we disclose this fee in our HELOC account opening disclosures? What about for other types of loans? We also provide other reasonable means for a borrower to make a payment and not incur a fee.
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We do not believe that Regulation Z requires you to disclose an online payment fee in the account opening disclosures, but we recommend considering disclosing the fee due to the federal banking regulators’ increasing scrutiny of add-on fees like online payment and convenience fees. It may be possible to fully disclose an online payment fee…
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We made a commercial construction loan that converted to a closed-end mortgage loan with a balloon payment. The loan was for the construction of a condo unit that the developer initially intended to sell or rent out for income. After origination, the developer decided to move into the property as their primary residence. The loan is now reaching maturity. Can we extend the maturity date without triggering the requirement to provide TRID disclosures?
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We believe you may modify the mortgage loan to extend the maturity date without providing disclosures under the TILA-RESPA Integrated Disclosure (TRID) rule, provided that you do not satisfy and replace the existing mortgage loan with a new transaction. Under Regulation Z, if a business purpose loan is later rewritten for consumer purposes, “[s]uch a…
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Should the fee for a certificate of exemption from the Illinois anti-predatory lending database program be disclosed as a finance charge? The certificate of exemption is filed with the mortgage.
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No, we do not believe a certificate of exemption fee should be included in the finance charge calculation, provided that the fee is bona fide and reasonable in amount. In Cook, Kane, Peoria and Will counties, the Residential Real Property Disclosure Act requires an anti-predatory lending database program. In those Illinois counties, a title insurance…
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We are processing a commercial adjustable-rate mortgage (ARM) loan in our LaserPro system. The loan is to two individuals to purchase an investment property. The system is giving us a critical warning that states “this loan contains a deep discount feature. Please adjust the periodic interest rate cap to avoid creating a deep discount feature.” Is there an Illinois rule concerning deep discounts when it comes to ARM loans?
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We are not aware of any federal or Illinois law prohibiting “deep discount features” for commercial ARM loans. We recommend reaching out to LaserPro for an explanation of the error. The Illinois Banking Act permits banks to charge any “interest, fees, and other charges . . . subject only to the provisions of [subsection 4(1)]…
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We believe that creditors must request the six pieces of information constituting an application under Regulation Z in their online mortgage loan applications. However, our loan originators and vendors claim that it is a common practice for online applications to omit property address for purchases and property value for refinancings. Is this practice allowed by Regulation Z?
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We do not believe that creditors are required to collect the six items of information that make up an application all at once or in a single online form, as a creditor may collect the six items in the order that best suits its needs. Consequently, we believe that the practice of omitting certain data…