Topic: Truth in Lending Act (TILA)
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Does a business purpose loan that will be secured by the business owner’s primary residence require a right of rescission under Regulation Z?
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No, an extension of credit primarily for a business purpose is exempt from the Truth in Lending Act and Regulation Z — including their right of rescission requirements — regardless of the type of collateral securing the loan. For resources related to our guidance, please see: Truth in Lending Act, 15 USC 1603(1) (“This subchapter…
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An individual has applied for a loan to purchase a two-unit mixed purpose building, which will secure the loan. He plans to make one unit his primary dwelling and rent out the other unit (a store front with a workshop and back office). We will not be using any commercial income in the underwriting. Does this loan require the TILA-RESPA Integrated Disclosures (TRID)?
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We believe that in most cases, a loan secured by a two-unit building that will be owner-occupied should be treated as a consumer-purpose loan subject to the TRID requirements. The TRID requirements apply to most closed-end consumer credit transactions that will be secured by real property. This loan will be secured by real property, and…
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On a consumer construction loan that closed nearly a year ago, we disclosed fees for six inspections related to an estimated six draws. These six fees were disclosed on the closing disclosure as “services the borrower did not shop for” and were collected at the loan closing. The borrower now has taken more than the estimated six draws, incurring additional, undisclosed inspection fees. Under Regulation Z, can we collect those fees?
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In our view, the new fees do not create a tolerance violation under Regulation Z, and you may charge the borrower for the fees, provided that such charges do not violate your loan agreement. In general, construction inspection fees are loan costs subject to the good faith tolerances for the category in which they fall.…
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We understand that the Mortgage Escrow Account Act applies only to single-family, owner occupied residential properties. Does the law include any criteria to help determine when a residential property is “owner occupied”? For example, would a vacation home be covered by the Act?
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No, there are no provisions in the MEAA that outline the criteria for a property to be considered “owner occupied,” and we are not aware of any court cases that have clarified MEAA’s “owner occupied” requirement. In order to comply with MEAA, then, your bank will have to establish its own method to determine the…
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We are extending a residential mortgage to a customer who also has obtained down payment assistance loan from the Illinois Housing Development Authority (IHDA), which has told us that we are responsible for preparing their Loan Estimate (LE) and Closing Disclosure (CD). The IHDA loan is junior to our loan and is subject to 0% interest. How should we fill out the LE and CD? Our forms vendor will not prepare an LE and CD with a $0 payment and 0% interest.
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Under a recent Regulation Z amendment, we believe that this down payment assistance loan may qualify for an exemption from the LE and CD requirements. Regulation Z includes an exemption from the LE and CD requirements for certain housing and down payment assistance loans, allowing the use of a more streamlined disclosure (the “TIL disclosure”)…
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Can we establish a 3:00 p.m. cut-off time to receive residential loan payments, even if we are open until 4:00 p.m.? When do we have to post home loan payments that we receive on days that we do not process payments?
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We believe that you may establish a 3:00 p.m. cut-off time for receiving (and crediting) payments on closed-end residential loans, but not for receiving (and crediting) payments on open-end residential loans. When you establish a cut-off time for when loan payments are considered received, the cut-off time must be “reasonable.” For open-end loans secured…
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What do we use to determine the “Loan Term” on a Loan Estimate and Closing Disclosure, the date of loan or the date the first payment is due?
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The “loan term” is the term of the debt obligation. The borrower typically incurs the debt obligation on the date the loan is made, regardless of when the first payment is due. Consequently, we believe that you should use the date the loan is made — not the date of the first payment — to…
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When a title insurance agent acts as a settlement agent for a residential mortgage closing, we have been tracking down and using their Illinois title insurance registration number in lieu of an NMLS number on the Closing Disclosure. Is this still correct?
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Yes, we believe it is still true that when a settlement or closing agent is a registered title insurance agent, the Closing Disclosure should display the agent’s Illinois title insurance registration number. Regulation Z’s requirements for the Closing Disclosure include the disclosure of “a license number or unique identifier for each person (including natural persons)…
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We required a borrower to pay off existing credit card balances as a condition of receiving a loan to purchase a new home. The payoff will not be deducted from the loan proceeds; the borrower will pay off the debt out of pocket at the closing. Where should we list the credit card payments on the Closing Disclosure?
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We believe the appropriate place would be Section K, Line 04 — Due from Borrower at Closing. In our view, there are no provisions in Regulation Z that directly address whether and where to disclose the payoff of a borrower’s credit card balance prior to their receipt of a loan on a Closing Disclosure. However,…
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If a bank advertises in Spanish, does it have to provide loan documents in Spanish?
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No, we do not believe that advertising in Spanish obligates a bank to provide loan documents in Spanish. However, you should be aware of two statutory notice requirements in Illinois relating to residential mortgage foreclosures. One requirement applies to all foreclosure filings, and one requirement applies to foreclosures of residential rental properties located in the…