Topic: Truth in Lending Act (TILA)
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We have heard the Illinois Supreme Court recently ruled that a land trustee that executes a mortgage is entitled to receive the TILA disclosures, including the notice of right to rescind for refinancings. Is this correct? Also, should these loans to trusts be reported on our Home Mortgage Disclosure Act loan application register (HMDA LAR) based on this decision?
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Yes, the Illinois Supreme Court held that the trustee of a land trust for residential property is covered by the Truth in Lending Act (TILA) and is entitled to receive TILA’s mandated disclosures and the right of rescission. The Court observed that Regulation Z expands TILA’s right of rescission to “a natural person in whose…
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We are trying to assess the risks of the new TILA-RESPA Integrated Disclosure (TRID) requirements. What is the statute of limitations for customer claims regarding issues with the new disclosure forms?
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Generally speaking, the Truth in Lending Act provides a three-year statute of limitations for violations of its disclosure requirements. Generally, the RESPA does not provide a private right of action for violations of its disclosure requirements. The CFPB provided a brief but concise overview of the private rights of action under the TILA and RESPA…
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Should we include a title company’s “closing fee” in the finance charge calculation? The closing fee is charged for the service of conducting the real estate closing. We thought that a closing fee should be excluded, since we do not require the imposition of the charge, nor do we require the use of a particular title company as closing agent. Moreover, cash transactions also have closing fees, and fees that are charged in comparable cash transactions are not required to be included in the finance charge.
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We believe that a separately itemized fee for conducting a loan closing should be included in the finance charge calculation if it is a required service, even though your institution permits borrowers to select the service provider. Regulation Z and the accompanying Official Interpretations include fees charged for a conducting or attending a closing in…
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For a residential mortgage loan Closing Disclosure, should we show the charge for the owner’s title insurance policy as being paid by the seller or the buyer? Some title companies are showing the charge as paid by the buyer, and then giving the buyer a credit from the seller. Is that still acceptable?
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When the seller is paying for the owner’s title insurance policy, we believe that the best approach is to disclose the policy cost in the seller-paid column (under “Other Costs” in the Closing Disclosure), although the TRID rules do not specify exactly which column to use. The TRID rules simply require you to designate title…
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The TRID rules permit us to remove certain seller information from the Closing Disclosure that we provide to the buyer. However, the rules do not permit us to remove some of the seller’s information, such as the amount paid for a broker’s commission and home inspection and home warranty fees. Doesn’t the inclusion of that information violate the seller’s privacy rights?
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We do not believe that sharing limited information about the seller in the Closing Disclosure for a consumer mortgage transaction will create any privacy issues, primarily for two reasons. First, the financial privacy protections under state and federal law apply only to a customer who has obtained a financial product or service from you. Because…
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Would we violate a customer’s privacy rights by providing a copy of the customer’s Closing Disclosure to the seller and the seller’s realtor in advance of the closing (so that they can check it for accuracy)?
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Yes, we believe it would violate your customer’s privacy rights if your bank were to provide a full Closing Disclosure to the seller, unless your customer agrees to providing this disclosure. Alternatively, the TRID rules provide a modified Closing Disclosure form that redacts certain personal financial information of the buyer for purposes of providing to…
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We qualify as a small creditor under the Qualified Mortgage (QM) rules, but we are not located in a “rural or underserved area.” We do make portfolio balloon loans that qualify for the small creditor balloon QM exemption, but that expires on April 1st of this year. After that date, can we continue to make balloon mortgages? Do you recommend not offering balloon loans and instead offering adjustable rate mortgages?
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We believe you may continue offering balloon loans that pass an ability-to-repay (ATR) analysis. However, your balloon loans will not qualify as QMs after April 1, 2016, unless you qualify for the “rural or underserved” exception to the QM requirements (which may be subject to change, as discussed below). As you suggested, an ARM loan…
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Aside from ATR or QM issues, is there a state law that requires us to execute balloon loan renewals, extensions or modifications before the loan’s original maturity date?
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No, we do not believe that you are required to enter into a renewal, extension or modification before the loan’s original maturity date. Regulation Z distinguishes a “refinancing,” which could require a new set of disclosures, from other transactions, such as renewals, extensions and modifications, which do not require new disclosures. The general rule under…
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Are there any limitations on late fees for higher-priced mortgage loans under federal or state law? If so, should our late fees be calculated as a percentage of the total payment or just the portion that is past-due?
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No, there are no limitations on late fees for “higher-priced mortgage loans,” which have interest rates exceeding 1.5%, 2.5% or 3.5% over the average prime offer rate (depending on the lien position and loan amount). Regulation Z imposes escrow, appraisal and other requirements on higher-priced mortgage loans, but it does not limit late charges for…
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One of our business customers is past-due on its business credit card. We have a security agreement securing a separate loan with a cross-collateralization clause granting us a security interest in “all present and future debts.” Would any laws prohibit us from enforcing the security agreement with respect to the business credit card debt?
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No, we are not aware of any laws prohibiting you from enforcing a security agreement that secures business credit card debt. For example, Regulation Z’s limitations on securing credit card debt with a borrower’s deposit account apply only to consumer debts. Also, we note that courts in Illinois generally have upheld cross-collateralization clause, provided that…