Topic: Truth in Lending Act (TILA)
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Our mortgage closings are handled by a title company. All funds, including recording fees, are paid to the title company, which then pays the recording fee to the county recorder. Since we are not directly paying the recording fee to the public official, should we include the recording fee in our finance charge calculations?
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No, this fee can be excluded from the finance charge calculation, provided that it is itemized and disclosed and the title company pays the entire fee to the public official. Regulation Z's finance charge calculation excludes fees “that actually are or will be paid to public officials” for recording a mortgage, among other similar fees.…
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Where is a third-party fee that is charged by a realtor to the borrower as part of the sales contract recorded on the Loan Estimate?
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A third party fee charged by a realtor should be recorded as “other costs” in Section H on the Loan Estimate if the creditor is aware of the fee when the Loan Estimate is issued. For citations related to our guidance, please see: Regulation Z, 12 CFR 1026.37(g)(4) (“Under the subheading ‘Other,’ an itemization of…
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We recently raised our document preparation fee, and our examiners are now questioning whether the fee should be excluded from the finance charge. We think they are suggesting that the fee is not “bona fide and reasonable.” One of our lenders told us that his former employer charged the same higher fee. Can you confirm that the fee should be excluded from the finance charge?
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If your examiners are questioning whether the fee is bona fide and reasonable, they may conclude that it should not be excluded from the finance charge. In general, Regulation Z exempts from the definition of a finance charge your “fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents,” but only…
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We originated a business-purpose mortgage loan. The loan documents use two different loan officers’ NMLS identifiers, because a second loan officer took over the file after the original loan officer left our bank. Now, the secondary market investor is refusing to purchase the loan because of the discrepancy in NMLS identifiers. Do the NMLS identifier requirements apply to non-consumer loans?
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No, the requirements to use the NMLS identifier on loan documents and elsewhere do not apply to non-consumer loans. Regulation Z’s NMLS identifier requirements apply only to consumer credit transactions secured by a dwelling. Similarly, the SAFE Act’s NMLS identifier requirements apply only to originations of consumer-purpose residential mortgage loans. However, it is possible that…
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We recently noticed a handful of loan documents that name our holding company, instead of the bank, as the lender. The documents state that payment is due to the holding company, but the payments are actually due to the bank, and the bank provided the initial disclosures. Do we need to ask our customers to sign new loan documents with the bank’s name?
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We believe it would be advisable to have these customers sign new loan documents. There are at least two areas of concern in the situation you have described: (1) the bank’s right to enforce the loans, and (2) compliance with Regulation Z’s disclosure rules. The first issue is whether the bank has the right to…
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We offer customers a zero interest loan to pay back the amount of their deposit account overdrafts. The loans are payable in more than four installments. Is it a UDAAP violation, or would it violate any regulation, to require customers to make the first periodic payment when they sign the loan documents?
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No, we are not aware of any rule that would prohibit you from requiring the first month’s payment at the time of the loan closing. However, this practice could raise the possibility of being viewed by regulators or by customers as abusive. Because the loans are payable in more than four installments, Regulation Z applies,…
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What Illinois laws or regulations will affect TRID implementation?
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While there are many potential intersections between the TRID rules and Illinois law, so far we have found three areas where it is necessary to consult Illinois law in order to comply with the TRID rules: (1) Under the upcoming TRID rules, the new Closing Disclosure must state whether a consumer “may remain responsible for…
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If we did not verify income and employment in accordance with the ATR rule, what are the repercussions or penalties?
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If a lender does not verify the borrower’s income or employment status “at or before” consummation of the loan, the lender has violated the Truth in Lending Act. If the lender or a subsequent purchaser of the mortgage loans files a foreclosure action, the borrower may assert the lender’s failure under the ATR rules as…
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For purposes of verifying income and employment status under the ability-to-repay (ATR) rules, we obtain pay stubs and tax returns, and for certain types of employees, we use the employer’s website (such as a realtor or teacher). Should we also be calling the applicant’s employer? And is a tax return sufficient to verify income for self-employed borrowers?
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No, the ATR rules do not require you to call an applicant's employer to verify employment status or income. Using an employer's website may not be sufficient to verify employment status, but it may be relied on together with other documentation of an applicant's employment status. The ATR rules also apply to a self-employed applicant,…
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Under the upcoming TRID rules, we must provide the Closing Disclosure three business days before “consummation” of the loan, and Regulation Z provides that state law governs when “consummation” occurs. What is the definition of “consummation” under Illinois law?
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Under Illinois case law, a mortgage loan is consummated on the date of the loan closing. A number of Illinois courts have held that consummation occurs on the date of the loan closing for purposes of the TILA. For resources related to our guidance, please see below: Personius v. Homeamerican Credit, Inc., 234 F.Supp.2d 817, 820…