Topic: Truth in Lending Act (TILA)
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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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For a residential mortgage loan, are we required to provide a non-borrowing, non-title holding spouse with a copy of the Closing Disclosure three days prior to closing? In this case, the spouse has signed the mortgage for the purpose of waiving their homestead rights.
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No, you are not required to provide a Closing Disclosure to an individual who is not a borrower and who has no ownership interest in the property securing the mortgage loan. Regulation Z requires that a Closing Disclosure be provided to a “consumer,” which is defined as a person to whom credit is offered or…
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We are extending a bridge loan that will be secured by the borrowers’ current home and a new home that is being purchased. The borrowers’ current home is owned by three people — two borrowers who reside there and a third individual who does not reside there and is not a borrower on the bridge loan. Our loan documentation system (LaserPro) added the third person to the Closing Disclosure. However, we do not believe the third individual is entitled to receive the Closing Disclosure since they are not a borrower and are not entitled to rescind the transaction. Can you confirm that this is correct, and that Illinois law does not require the third person in this scenario to receive the Closing Disclosure?
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Yes, we agree that the third individual in this scenario should not be included in the Closing Disclosure, since they are not a borrower on the bridge loan and a security interest is not being taken in their principal dwelling. While this individual may need to sign certain documents to perfect your bank’s lien on…
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Our customer signed an unsecured consumer loan agreement last year. Payments were to be made in the amount of $100 per week. In a separate agreement, we agreed to automatically debit the payments from the customer’s account. However, we entered the automatic payments into our system incorrectly as $100 per month, instead of $100 per week. The customer noticed the discrepancy about a year later and owes approximately $3,000 more on the loan than they would have owed at this time had the loan been paid according to the agreement. The customer also has paid approximately $100 more in interest than they would have paid if the loan had been serviced correctly. We believe we likely need to reimburse the customer for the excess interest and provide a new amortization schedule with an explanation of our calculation. We also will re-write the note with an extended maturity date if the customer does not make up the missed weekly payments. Are there any regulations or guidance specific to this situation? We believe this error could be considered a UDAAP violation.
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No, we are not aware of any regulations or guidance specific to the situation described. Although the Truth in Lending Act requires restitution to be paid when a lender fails to make accurate disclosures, it does not appear that your bank made any inaccurate disclosures about the loan’s terms. In other words, this was an…
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We recently discovered that our home equity line of credit (HELOC) and junior lien residential mortgage loan agreements prohibit us from charging a lien release fee when releasing the mortgage. However, our first lien residential mortgage loan agreements permit us to charge a lien release fee. Is there an Illinois law that allows release fees to be charged for first lien residential mortgages but prohibits such fees for HELOCs or other junior lien mortgage loans?
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We believe that Illinois law permits banks to charge lien release fees for HELOCs and junior lien residential mortgage loans, provided that your customers have agreed to pay such fees in your loan agreement. In this case, your bank’s HELOC and junior lien residential mortgage loan agreements prohibit such fees, and the agreements’ restrictive language…
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A customer with a fixed-rate residential mortgage loan would like to modify the loan to lower the fixed interest rate and shorten the loan term, which would result in a higher monthly payment. Can we make these changes through a modification, and are any new disclosures or a new right of rescission notice required?
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Yes, we believe you may modify the terms of the existing loan to decrease the interest rate and shorten the loan term without falling within Regulation Z’s definition of a “refinancing” (which would require new disclosures under the TRID requirements). Also, the right of rescission does not apply to the modification of an existing dwelling-secured…
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We are launching a new website and want to publish our mortgage rates on it. What is the required disclosure language that rates are subject to change based on credit score, loan-to-value ratio, etc.?
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We are not aware of specific language that must be used when disclosing that advertised mortgage rates are subject to change based on factors such as a credit score and loan-to-value ratio, and Regulation Z does not include any sample or model language for such a disclosure. As a reference, the resources below include two…
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We are a state-chartered savings bank, and our Guaranteed Asset Protection (GAP) insurance company is running a promotion offering loan officers a $25 gift card for selling GAP insurance on auto loans. Is this legal? Our loan officer will not sell the GAP insurance unless it is required by our banking guidelines.
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Any bank employee who receives any incentive for referring GAP insurance customers would need to obtain an insurance producer’s license from the Illinois Department of Insurance. While the Illinois Insurance Code permits bank employees to enroll consumers in lines of insurance protecting personal property without obtaining an insurance producer’s license, they may do so only…
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We are looking for guidance on how to title a mortgage loan when a living trust is involved. For example, if Jen Test is the trustee of the Jen Test Revocable Living Trust dated 1/1/18 and the mortgaged property is held in the trust, how should this be reflected in the mortgage and deed? What if the property is not held in the trust, but the trust is a borrower on the loan? Also, our LaserPro documentation system requires that we input the names of any natural person beneficiaries of trust borrowers when a loan is made for personal, family, or household purpose. Would this apply to both living trusts and land trusts?
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The mortgagor described in the mortgage should be the party that holds title to the property. If the property is held in a living trust, the mortgagor would be listed in the name of the trust (e.g., “Jen Test Revocable Living Trust dated 1/1/18”), and the trustee would sign the mortgage on behalf of the…
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We would like to advance additional funds to a borrower and extend the maturity date of their mortgage loan. Based on the payments already made, the new loan balance would not exceed the original loan amount. However, the mortgage contains no future advance language. Can we increase the amount of the mortgage loan without recording a new mortgage? If so, are any disclosures required?
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Based on these facts, your bank may need to enter into a new promissory note and record a new mortgage in order to secure the advance of additional funds; however, if you roll up the existing promissory note into a new note, you could jeopardize your priority lien position with respect to existing creditors and…