Topic: Truth in Lending Act (TILA)
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Under the new ability-to-repay and qualified mortgage rules, can we offer a five-year balloon loan to a customer who can afford a 20-year fixed rate at 5%? Can we offer an adjustable rate loan? We are not considered to be a “small creditor” under the mortgage servicing rules.
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Based on these facts, we believe you may offer a balloon loan that could pass under the ability-to-repay (ATR) analysis. However, as your financial institution is not a small creditor under the mortgage servicing rules, you would not be able to offer a balloon loan that would qualify as a qualified mortgage (QM). We also…
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Our current policy is to notify all refinance customers of a right of rescission, even if we are not extending any additional funds and we are refinancing one of our own loans. Are we creating a problem by giving this disclosure in transactions where the right of rescission does not apply?
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As a general rule, we recommend that you do not deliver a notice of a right of rescission (ROR) when the customer (or other consumer who has an ownership interest in the property securing the loan) is not entitled to Regulation Z’s right of rescission. The ROR under Regulation Z does not apply to a…
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One of our residential mortgage loan customers is several months behind on his payments, and the homeowner’s insurance for the property securing the loan has lapsed. The escrow account has been exhausted. Under the CFPB’s servicing rules, can we force-place the homeowner’s insurance? Or, if we prefer, can we rely solely on our mortgage protection insurance?
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To answer your first question, the CFPB rules may limit your ability to force-place hazard insurance. To answer your second question, we do not believe that those rules require you to maintain or force-place hazard insurance for the borrower (other than flood insurance, when required) — meaning that you could, theoretically, rely solely on your…
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What are the regulatory requirements that apply to the assumption disclosure? What should we do if we failed to include an assumption clause in the Truth in Lending Act closing disclosure?
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Regulation Z requires that creditors disclose the assumption policy that will apply to any residential mortgage transaction. 12 CFR 1026.18(q). The phrase “residential mortgage transaction” is defined as “a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer’s principal dwelling to…
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We have decided to make only qualified mortgages (QMs). One of our customers wants to purchase a motor home, and both the motor home and the customer’s house will be collateral for the loan. If the motor home is not considered as part of the loan collateral, we’re concerned that the loan would not be considered a QM due to a high loan-to-value ratio.
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We believe that a mortgage loan that qualifies as a qualified mortgage (QM) would not be disqualified simply because it is only partially secured by the borrower's home. Of course, the new Regulation Z ability-to-repay (ATR) requirements would apply to this loan. The ATR rules apply to consumer credit transactions secured by a “dwelling,” provided…
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Can we continue to send home equity statements if the borrower has filed for bankruptcy under Chapter 13?
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We recommend that you review your home equity statements to determine whether they may be construed as attempting to collect on the outstanding debt. If they demand payment in any way, even if it is voluntary repayment, we recommend that you do not send the statements. We also strongly recommend that you seek the advice…
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During the ABA’s recent Mortgage Compliance Q&A call with the CFPB, the CFPB responded to a question by telling us to “check state law.” The question was how to define a “business day” for purposes of the 3-day requirement in Regulation B.
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The new Regulation B appraisal rule requires banks to provide a copy of an appraisal or valuation “promptly upon completion, or three business days prior to consummation of the transaction (for closed-end credit) or account opening (for open-end credit), whichever is earlier.” 12 CFR 1002.14(a)(1). The CFPB also acknowledged the lack of a definition of…
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Do Regulation Z’s valuation independence requirements (12 CFR 1026.42) apply to commercial real estate loans secured by a dwelling?
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The applicability of Regulation Z’s valuation independence requirements depends on the purpose of the loan — Regulation Z does not apply to an extension of credit primarily for a business, commercial or agricultural purpose. 12 CFR 1026.3(a). Additionally, Regulation Z does not apply to a loan made to anyone other than a natural person. 12…
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We would like to offer a new product, a consumer line of credit. The borrower will draw a fixed amount every month and would be paying interest only (not principal). Would this product be considered closed-end credit or open end credit? How should the disclosures be made?
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If the draw note is limited to a one-time maximum, and the customer cannot redraw up to the maximum after repaying the balance, then we believe the draw note should be considered closed-end credit under Regulation Z. Under Regulation Z, if a loan does not fall under the definition of open-end credit, then it is…
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One of our consumer mortgage loans (for owner-occupied residential real property) matured last week. If we extend the maturity date of the loan, would it be considered a refinance because it already matured (and as a result be subject to the new CFPB mortgage rules)?
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We agree that the CFPB’s new ability-to-repay requirements do not apply to renewals of existing loans, provided that the renewals are not considered “refinancings” under Regulation Z. Official Interpretations, 12 CFR 1026, Paragraph 43(a), Comment 1 (“§1026.43 does not apply to any change to an existing loan that is not treated as a refinancing under §1026.20(a)”). However,…