Topic: Truth in Lending Act (TILA)
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Are we correct that for rural banks, the threshold for higher-priced mortgage loans is the average prime offer rate (APOR) plus 3.5%, as long as we keep the loans in portfolio?
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Yes, there is a special higher-priced mortgage loan (HPML) threshold for “small creditors,” but only for purposes of the Qualified Mortgage (QM) rule. For QM rule purposes, there is a special definition of “higher-priced,” which sets a threshold of 3.5% over the APOR for first-lien QM loans — provided that the QM lender qualifies as…
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If a borrower will be purchasing a dwelling for a family member, the family member will be the occupant but not the borrower, and the family member is not paying rent, would that be a consumer purpose loan?
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Yes, this loan would be treated as a consumer purpose loan under Regulation Z. A consumer purpose loan is one offered or extended “primarily for personal, family, or household purposes.” If a borrower is purchasing a home for a family member and will not be collecting rent, we would view the loan as extended for…
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We have a request to add money to a balloon mortgage loan balance to pay for roof repairs. If the payment amount and interest rate remain the same, can we add to the loan balance without structuring the transaction as a refinancing?
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We believe that you may modify this loan without treating the transaction as a refinancing, and whether your bank chooses to structure this transaction as a modification or as a refinancing is a business decision. If your bank wishes to structure this transaction as a modification (which would not require new set of Regulation Z…
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We have a closed-end loan that is close to its maturity date. If we renew the loan and treat it as a change in terms before the maturity date, rather than as a refinance, would that trigger the TRID requirements? Also, can we charge a flood certification fee and other, non-APR fees, such as a credit report, appraisal, and title examination fee?
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No, we believe that you may renew a loan without triggering the TRID requirements under Regulation Z — and this is the case whether the renewal is executed before or after the loan’s original maturity date. However, the language that you use in the loan renewal documents must be carefully structured in order to achieve…
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We originated a home equity line of credit (HELOC) for the property owner. The borrower’s wife signed only the homestead waiver portion of the mortgage, since she does not hold title to the home securing the HELOC. Our loan software produced a right of rescission form for the husband but not for the wife. Shouldn’t the wife sign a right of rescission form as well?
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No, the wife is not entitled to the right of rescission because she is not an owner of the property securing the HELOC. The right of rescission applies only to persons with an ownership interest in the mortgaged property, and it does not apply to those with “leaseholds or inchoate rights, such as dower.” While…
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Some of our loan customers make their payments from checking accounts held at other banks. Our bank originates ACH transfers to pull loan payments from the borrowers’ outside checking accounts. Can we charge a fee if these payments are returned for insufficient funds (NSF)? If so, does our bank need to disclose this fee?
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Yes, your bank may charge an NSF fee, and yes, it must be disclosed and agreed to by your customers. We are unaware of any limitation on charging reasonable NSF fees for returned ACH transfers under Illinois law. The Illinois Uniform Commercial Code (UCC) generally limits returned check fees to $25, but this limitation applies…
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In the next few years we may have some escrow accounts for loans in which the mortgage amount will be reduced to 65% of its original amount. Are we required to provide a notice? Are there model disclosures or verbiage available?
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Yes, the Illinois Mortgage Escrow Account Act (MEAA) requires two notices to be delivered to customers at two different times — one notice at the loan’s closing, and a second notice when the mortgage actually is reduced to 65% of its original amount by timely payments of the borrower (provided the borrower is otherwise not…
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Is there a restriction on charging a “payoff processing fee,” such as when providing a payoff statement to an outside entity like a title company, for a loan that is not a high-cost mortgage loan? If so, should the payoff processing fee be disclosed in the loan documents?
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No, other than Regulation Z’s prohibition against charging fees for payoff statements for high-cost mortgage loans, we are not aware of any law prohibiting a payoff processing fee, provided the borrower has agreed to the fee in the loan documents. The Illinois Banking Act permits banks to charge any fees, interest and other charges based…
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Is a short-term bridge loan to purchase a primary residence that will be secured by the borrower’s current and new residence subject to the TILA-RESPA Integrated Disclosure (TRID) requirements?
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Yes, the TRID requirements apply to all closed-end consumer credit transaction secured by real property (other than a reverse mortgage). There is no exception to the TRID requirements for a short-term, temporary bridge loan. Certain bridge loans are exempt from certain other Regulation Z requirements (including some of the ability-to-repay (ATR) and qualified mortgage (QM)…
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A customer passed away who had a deposit account and a credit card account at our bank. Can we access the deposit account funds to pay off the customer’s outstanding credit card balance? We believe that our account agreements include generic setoff provisions. The customer had not set up an automatic credit card bill payment. We have not attached a levy on the funds or obtained a court order with respect to the debt.
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Whether your bank may access the deposit account funds to pay the deceased customer’s credit card debt depends on a careful review of your account disclosures and agreements. Regulation Z generally prohibits banks from exercising setoff rights in deposit account funds with respect to consumer credit card debts. There is an exception for obtaining or…