Topic: Truth in Lending Act (TILA)
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Does RESPA apply to a loan to purchase a non-owner occupied rental property? We know it is exempt from Regulation Z.
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We believe that neither RESPA nor Regulation Z would apply to the loan to purchase a rental property that would not be owner-occupied. RESPA excludes from coverage any loan made “primarily for a business, commercial, or agricultural purpose, as defined by” Regulation Z. 12 CFR 1024.5(b)(2). As you noted, Regulation Z does not apply to…
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How should we distribute the CHARM Handbook and the HUD Settlement Cost Booklet to customers who access our loan applications online? Currently, our online system automatically prints the both documents, leading to customer complaints. We don’t accept applications online; customers can submit applications by faxing, mailing, or bringing the application to a branch.
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We do not believe that the Consumer Handbook on Adjustable Rate Mortgages (CHARM Handbook) or the Settlement Cost Booklet (referred to in the rules as the “special information booklet”) need to be automatically printed with loan applications that your customers access online. As explained below, the CHARM Handbook can be provided to an online loan…
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One of our customers is an LLC that is buying a residence. The LLC’s owner will live in the residence. Would Regulation Z or RESPA apply to this loan?
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From what you have told us, it is likely that RESPA will apply to this loan, and Regulation Z will not. Because Regulation Z applies only to natural persons, we believe that Regulation Z would not apply to a loan where the borrower is a limited liability company (LLC). However, RESPA would likely apply to…
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One of our loan officers wants to enforce a term in our loan agreement that permits us to charge an increased interest rate after a default of 4%. Is this permitted under Illinois law?
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There are very few limitations on interest rates and fees charged by banks under Illinois law, whether for commercial or consumer loans. However, any post-maturity rates (also known as default rates) must be agreed to by your customers in your loan agreements, and they may be subject to court scrutiny if they are not considered…
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What are the requirements under the CFPB’s new ARM rate change notice? We have a loan with the first payment under the initial rate adjustment due on December 1. What model form should we use, and when should we mail it?
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The first adjustable rate mortgage (ARM) rate change notice must “be provided to consumers at least 210, but no more than 240, days before the first payment at the adjusted level is due.” 12 CFR 1026.20(d). The staff commentary clarifies that this rule requires a lender or servicer to “deliver the notice or place it…
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Can we renew a bridge loan that closed before January 10, 2014, and still have it be exempt from ATR and QM? What if a bridge loan was closed after the rules went into effect and will need to be renewed?
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We believe that the ability-to-repay (ATR) and qualified mortgage (QM) rules exempt all bridge loans with terms of twelve months or less, regardless of when a bridge loan was entered into. 12 CFR 1026.43(a)(3)(ii). (The regulations do not fully define the term “bridge loan,” other than specifying that the term of such a loan should…
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We act as a third party originator for a correspondent bank. We originate loans, and the correspondent bank underwrites the loans, funds the loans, and sells them on the secondary market. The loans are closed under our name and are initially payable to our institution. Our correspondent pays us a portion of the fee earned on the loans from the secondary market purchasers. Does that fee have to be included in the points and fees calculation under the new CFPB mortgage regulations?
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We do not believe that the payments from the bank purchasing your loans would be includable in the points and fees calculation in this situation. The Regulation Z mortgage rules define “points and fees” to include “compensation paid directly or indirectly by a consumer or creditor to a loan originator . . . .” 12…
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On the new periodic statements, do we have to include a toll-free number if we are a community bank?
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If your institution qualifies as a “small servicer,” you will be exempt from all of the periodic statement requirements. 12 CFR 1026.41(e)(4). You will be considered a small servicer if your institution and any affiliates were servicing a total of 5,000 or fewer mortgage loans as of January 1 of this year, provided that your…
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We originate balloon loans, which we usually renew with three- or five-year balloons. Can we increase the interest rate on a renewal? Apparently some states do not allow interest rate increases on modifications (such as Michigan). And would the new ability to repay (ATR) rules apply to the renewals if we increase the interest rate?
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Illinois Laws on Increased Interest Rates We are not aware of any Illinois laws that would prevent you from increasing the interest rate with a loan modification. There are very few limitations on interest rates and fees charged by banks under Illinois law. Section 5e of the Banking Act states that a bank may “elect…
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Under the new CFPB ability-to-repay rules, are small creditors exempt from calling to verify employment status? Can we use a borrower’s paystub to verify employment? This would just be to comply with the ATR rules, not to qualify a mortgage as a QM.
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The CFPB’s ability-to-repay (ATR) rules do not require creditors of any stripe to verify a borrower's employment status over the phone. (Note that these rules differ from the more onerous “qualified mortgage” (QM) requirements.) However, the rules do expressly permit creditors to verbally obtain a verification of employment (VOE) status. And, as we discussed with…