Topic: Truth in Lending Act (TILA)
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When is it necessary to have a customer sign a modification of mortgage? If the interest rate, maturity date or any other loan terms are changed, do we need to provide new disclosures and record a modification of mortgage?
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Depending on the changes being made, we believe it may be possible to modify the terms of a loan without recording a modification of mortgage, but we recommend engaging your bank’s counsel to review the relevant loan documents to ensure that your bank’s lien position will not be affected. Additionally, aside from the caveats noted…
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With respect to Illinois law, please offer any insights into granting borrowers’ requests to skip monthly payments on adjustable rate mortgages (ARMs) with thirty-year terms or monthly interest payments on home equity lines of credit (HELOCs). For the ARMs, the skipped payments would be added to the end of the scheduled loan payments, and for the HELOCs, the skipped interest-only payments would be spread over a few months to avoid the borrower being hit with one large interest payment.
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Illinois law does not expressly address mutually agreed-upon skipped payments — whether offered by the bank as a “skip-a-payment” program or when requested by the borrower. However, such arrangements are permissible in Illinois. It is important that your “skip-a-payment” agreement does not have the effect of canceling the original loan and substituting it for a…
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Can we waive a bona fide third-party fee on a home equity loan (that is not a line of credit) and then recoup the fee if the borrower pays off the loan in thirty-six months or less? Is this something we would indicate in the note? We do not believe this would be a prepayment penalty. However, when Regulation Z states that “[a] creditor must not offer a consumer a covered transaction with a prepayment penalty unless the creditor also offers the consumer an alternative covered transaction without a prepayment penalty” — what does that mean? Would an alternative covered transaction be the same loan product with a higher price?
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We believe you may recoup bona fide third-party charges that were waived at consummation if the borrower repays the loan within thirty-six months — provided such terms are included in your note — and this recoupment would not be a prepayment penalty. Additionally, if you were to impose a prepayment penalty, we believe you would…
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Our bank is going to begin accepting applications for commercial and agricultural loans and working with a new document vendor. What disclosures and terms and conditions are required for commercial and agricultural loans?
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While we cannot provide an exhaustive list of all necessary disclosures without knowing the details of the specific loans, we have highlighted some of the possibly applicable disclosure requirements below. Mortgage loans extended for primarily commercial or agricultural purposes are not subject to the TILA-RESPA Integrated Disclosure (TRID) requirements. However, certain disclosure requirements apply to…
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We extended a loan to a borrower who purchased a home with the intention of making it his principal residence. He is unmarried and decided at the time of closing to add his girlfriend to the deed. She signed the mortgage but was not included on the Closing Disclosure (CD). Our loan documentation system included a signature line only for the borrower. Is this correct? Also, if a borrower refinances a loan secured by their primary residence without their spouse on the loan, would the spouse be required to sign the CD? This is assuming the spouse is listed on the deed and would be given a notice of the right of rescission and be required to sign a waiver of homestead rights.
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You were not required to provide a copy of the CD to the customer’s girlfriend or obtain her signature on the CD, since she is not entitled to rescind the purchase loan and therefore is not a “consumer” who must receive a copy of the CD. Regulation Z requires that a CD be provided to…
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We have a borrower with a contract to purchase a modular home from a manufacturer. The Loan Estimate indicated that the purpose of the loan was for a purchase. However, we recently learned that the borrower has already acquired title to the land where the modular home will be located from their parents by quitclaim deed. Both the modular home and the land will be collateral for the loan. No funds will be disbursed at the closing. The manufacturer will be paid as the units of the modular home are delivered. Can we change the stated purpose of the loan on the Closing Disclosure to “construction,” since the borrower is not purchasing the land?
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In our view, the loan purpose should be identified as a purchase on the Closing Disclosure (CD). The TRID rules require lenders to identify one of four possible loan purposes in the Loan Estimate (LE) and CD: (1) purchase, (2) refinance, (3) construction, or (4) home equity. A purchase loan is one made to finance…
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In the “Liability after Foreclosure” section on page 5 of the Closing Disclosure, should we indicate that “state law may protect you from liability for the unpaid balance” or that “state law does not protect you from liability for the unpaid balance”?
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Lenders extending mortgage loans in Illinois should check the box on the Closing Disclosure indicating that “state law does not protect you from liability for the unpaid balance” to reflect that a borrower may remain responsible for any deficiency after foreclosure under Illinois law. The Illinois Mortgage Foreclosure Law states that a foreclosure does not…