Topic: Truth in Lending Act (TILA)
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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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We have a credit card program for which we currently do not impose daily spending limits, fallback limits, or holds on ACH payments. As a fraud prevention measure, we would like to impose these limits and holds. Do we need to disclose these changes to our existing cardholders? If so, how much notice do we need to give cardholders prior to making the change?
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We are not aware of any laws or regulations that expressly require prior disclosures of the changes in terms you have described. However, we recommend disclosing these changes to existing cardholders at least 45 days before imposing them. Both the Truth-in-Lending Act and Illinois law require 45 days’ notice before the effective date of various…
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Our bank received a Chapter 7 bankruptcy notice for a customer who has a home equity line of credit (HELOC) with our bank. Can we decrease the available amount on the line, without terminating it, so that the customer may no longer access the funds? If so, what notification, if any, do we need to provide to the customer? Also, would we need to send an adverse action notice to the borrower, or does the bankruptcy prevent us from doing so?
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Yes, we believe that your bank may reduce a HELOC’s line of credit after receiving a Chapter 7 bankruptcy notice, subject to the notice requirements discussed below. Regulation Z generally prohibits creditors from reducing or freezing a HELOC’s credit limit unless an exception applies. One exception permits the reduction or freezing of a line of…
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Is our bank required to obtain multiple comparables as part of the appraisal/evaluation review process?
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The answer to your question depends on the property type and loan type, as well as whether your institution is relying on an appraisal or an evaluation. When reviewing appraisals or evaluations, your institution is required to ensure that they “comply with the Agencies’ appraisal regulations and are consistent with supervisory guidance and its own…
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Are there any laws or regulations in Illinois that require documents (such as loan documents) to be provided in a language other than English?
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We are not aware of any Illinois laws requiring banks to provide documents in languages other than English, with three exceptions: there are two residential mortgage foreclosure documents that must be provided in multiple languages, and certain disclosures must be made when using an interpreter to conduct banking transactions. When filing a foreclosure action against…
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When originating a bridge loan secured by the borrower’s current principal dwelling and a new principal dwelling, when should the mortgages be recorded? Under Regulation Z, a bridge loan is subject to rescission when it is secured by the borrower’s current principal dwelling and the new dwelling being purchased. For example, if a loan closing is scheduled for June 14, the loan documents would have to be dated June 10 to ensure that the three-day rescission period has passed before we disburse the loan funds to purchase the new principal dwelling. But in that scenario, our loan origination system would produce a mortgage for the current dwelling and a mortgage for the new dwelling, each dated June 10. How can a borrower mortgage a property that they do not yet own?
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A borrower cannot mortgage a property they do not own, because they cannot convey its title to a lender when they do not own the property. We agree in this scenario that the promissory note and the mortgage on the current dwelling both should be dated and signed on June 10, to allow for the…
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Over a year ago, we made an installment loan contract on other real estate owned (OREO) property owned by our bank. The borrowers now are eligible to obtain a new residential loan with us and pay off the contract. The title to the property currently is in our bank’s name. We are selling the loan to Fannie Mae, which is treating it as a refinancing transaction. For purposes of the TRID disclosures, should we treat this as a refinancing or a purchase?
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We believe that your bank should identify the loan purpose on the TILA-RESPA Integrated Disclosure (TRID) forms as a refinancing. The TRID rules require lenders to identify one of four possible loan purposes in the Loan Estimate: (1) purchase, (2) refinance, (3) construction, or (4) home equity. A purchase loan is one made to finance the…
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We are developing a change-in-term notice for our open-end consumer loans (not secured by real estate). Does Illinois law impose any additional requirements on such notices beyond those Regulation Z? For example, an Iowa law requires sixty days’ advance notice of a change in terms.
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Yes, the Illinois Financial Services Development Act (IFSDA) adds requirements for change-in-term notices for revolving credit, in addition to federal law. Section 8 of the IFSDA requires change-in-term notices to be provided at least 30 days before an amendment that “has the effect of increasing the interest or other charges to be paid by the…
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What are some of the rules and regulations to consider if a bank starts to offer online unsecured personal loans? Also, have there been any fines, penalties, enforcement actions, consent orders etc. regarding offering online loans?
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The laws and regulations applicable to online unsecured personal loans are the same laws and regulations that would apply to any unsecured personal loan. We cannot provide a comprehensive list that would cover every possible situation, but examples in federal law include everything from Regulation Z to fair lending requirements to regulations under the Military…
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We are planning to hire a mortgage lender who would be compensated with commissions only. Are there any Illinois laws or regulations that we need to be aware of?
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No, we are not aware of any Illinois laws specific to compensation provided to a loan originator on a commission basis, outside of general employment laws applicable to any type of commissioned employee. Of course, federal law prohibits paying commissions to a loan originator that are “based on a term of a transaction,” such as…