Topic: Truth in Lending Act (TILA)
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Our bank made a closed-end construction loan to a borrower. The loan was not intended to convert to permanent financing after construction was complete. However, now that construction is complete, the loan has a remaining balance of $100,000. The loan is up for renewal, and we would like to change the terms from a variable rate to fixed rate and from interest only payments to principal and interest payments. Can we issue a change in terms without issuing a new loan?
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Whether a subsequent transaction related to the same loan should be treated as a new loan depends on the specific facts, including consideration of the original and any subsequent loan documents. In this situation, for the reasons discussed below, we believe that the continuation of the extension of credit should be treated as a new…
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In our area [Cook County], title companies charge a “Tax & Indemnity” fee when the company holds funds for property taxes that are due within 60 days of a mortgage loan closing, generally in situations where the tax bills for the upcoming installment have not yet been issued. Should we include this fee in the finance charge calculation?
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No, we believe this Tax & Indemnity fee should be excluded from the finance charge calculation, since it is a title insurance-related fee that is part the title insurance process. Regulation Z exempts fees for “title examination, abstract of title, title insurance, property survey, and similar purposes” from the finance charge calculation. Title companies charge…
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We offer higher priced mortgage loans that are balloon loans with a 61-month fixed rate term and an amortization of up to 30 years. Which Federal Financial Institutions Examination Council (FFIEC) table should we use to determine average prime offer rates (Average Prime Offer Rates – Fixed or Average Prime Offer Rates – Adjustable)?
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You should use the FFIEC’s fixed-rate table for the loans you described. The balloon payment at the end of loan term does not change the fact that the loans have a fixed rather than adjustable interest rate. A fixed-rate mortgage is defined as a transaction secured by real property or a dwelling that is not…
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In our area, the seller for a real estate purchase transaction almost always chooses the title company. Our Loan Estimates do state that the borrower is permitted to shop, and we provide a written list of providers. But because the seller selects the title company, is that estimated charge subject to 10% tolerance?
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First, the Real Estate Settlement Procedures Act (RESPA) prohibits sellers from requiring a buyer to use a particular title company. However, if the seller suggests a particular title company, and the buyer acquiesces to that suggestion, the charge would be subject to a 10% tolerance as a third-party service that the borrower could shop for…
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We’re a small, rural community bank. Do our balloon loans that have an annual percentage rate (APR) of less than 3.5% above the average prime offer rate (APOR) constitute qualified mortgages that qualify for the safe harbor under the ability-to-repay rules?
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Yes, small, rural creditors can originate a qualified mortgage with a balloon-payment feature, and these loans are deemed to comply with Regulation Z’s ability-to-repay requirements as long as the loans have an APR of less than 3.5% over APOR for a comparable transaction. However, a loan that is 3.5% or more above APOR constitutes a…
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Under the TRID rules, if an appraised value comes in less than we anticipated and the applicant already has received the Loan Estimate, do we have a valid changed circumstance permitting us to issue a revised Loan Estimate? The lower appraisal value means that the loan amount will change, but none of the charges disclosed on the Loan Estimate will change.
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No, we do not believe the TILA-RESPA Integrated Disclosure (TRID) rules permit you to issue a revised Loan Estimate simply due to a lower appraised value of the property (subject to the discussion below). While you state that the charges will not change, the loan amount, estimated payments, cash-to-close and possibly other loan terms set…
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Are bridge loans subject to the TRID disclosure requirements even though they are exempt from RESPA?
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Yes, the TILA-RESPA integrated disclosure (TRID) disclosure requirements apply to bridge loans, even though bridge loans are exempt from RESPA regulations. In publishing the final rule implementing TRID, the CFPB acknowledged that temporary loans may have unique characteristics that make them ill-suited for RESPA disclosures. Nevertheless, the CFPB included temporary loans in the TRID disclosure…
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If we have a loan secured by a mobile home that is treated as chattel property under Illinois law, what disclosures and timing requirements apply under Regulation Z? (The loan is not secured by land.)
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While the TRID rules and Regulation X do not apply to a loan secured by a mobile home that is not also secured by land, there are certain provisions of Regulation Z that do apply. Under Regulation Z, you should provide an interest rate and payment summary, together with a specialized disclosure required for non-TRID…
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We pay two employees commissions for the mortgage products that they sell. If we pay commissions for sales of closed-end mortgages, are we also required to pay the same commission for sales of home equity lines of credit (HELOCs)? Would the commission structures have to be identical?
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We do not recommend compensating sales of HELOCs differently than sales of closed-end mortgage loans, due to Regulation Z’s prohibition on compensating a loan originator “based on a term of a transaction.” Regulation Z’s restrictions on loan originator compensation do not apply to HELOCs, but they do apply to closed-end mortgage loans secured by a…
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Do the Regulation Z disclosure requirements, including notice of the right to rescind, apply to revocable or irrevocable trusts?
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Yes, but only if the credit is being extended primarily for personal, family or household purposes. The CFPB views such credit transactions as being “in substance (if not form) consumer credit . . . .” Moreover, the CFPB does not differentiate between revocable and irrevocable trusts for this determination. For resources related to our guidance, please see:…