Topic: Truth in Lending Act (TILA)
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If we have existing balloon loans that mature after 1/10/14 and the terms were less than 5 years must we refinance the loan into a 61 month balloon to qualify for QM? Or can we extend the existing maturity for less than 5 years? Presently we would just file a modification agreement and extend it for another 3 years.
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We do not believe that a balloon loan with a term of less than five years could be considered a qualified mortgage (QM). It may be possible to make a balloon loan with a term of less than five years, but it would have to otherwise satisfy the general ability-to-repay (ATR) requirements. Also, as discussed…
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One of our customers signed loan disclosures for a car loan, but the loan will not be funded until more than a week after we disclosed the loan’s APR. Because the disclosures were based on a disbursement date that has already passed, the APR calculation will be changed (as the loan period has changed by a week). Do we need to do new loan disclosures?
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Whether you need to redisclose depends on how much the disclosed annual percentage rate (APR) differs from the APR based on a slightly shorter loan period. Regulation Z requires you to redisclose all changed terms if the disclosed APR differs from the actual APR by more than 1/8 of 1 percent. 12 CFR 1026.22(f)(2).
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If we extend a balloon loan that has not yet matured but change the payment terms (by changing the term from three years to one year), would that be considered a refinance or a renewal?
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Whether a subsequent transaction related to the same loan should be treated as a refinancing with new TILA and RESPA disclosures depends on the loan documents. The general rule is that a refinancing occurs only when an existing obligation is “satisfied and replaced by a new obligation undertaken by the same consumer” (under Regulation Z)…
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Can we start charging insufficient fund (NSF) fees on our current loans by amending our existing loan agreements? If so, are we required to provide thirty days’ notice to the affected customers?
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While there are few limitations on fees banks may charge under Illinois law, you cannot start charging NSF fees to existing customers who have not contracted to pay such fees in their loan agreements. That said, we recommend contacting your bank counsel, as your current loan agreements may already include provisions permitting you to charge…
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We are making an unsecured loan to purchase a primary residence. Would this be subject to RESPA, Regulation Z, or the HPML requirements?
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We believe that an unsecured loan would be exempt from the higher-priced loan requirements, the RESPA rules, and the HMDA requirements (which are contained in Section X of Fannie Mae’s Uniform Residential Loan Application form). All three regulations apply only to loans that are secured by certain types of properties, as explained below, and therefore…
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Do the HPML regulations apply to a loan secured by a modular home?
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The higher-priced mortgage loan (HPML) regulations apply to any consumer loan “secured by the consumer’s principal dwelling” (assuming that the loan otherwise meets the “higher-priced” definition). 12 CFR 1026.35(a)(1). The term “dwelling” is defined as a “residential structure that contains one to four units, whether or not that structure is attached to real property. The…
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We know we must disclose that HELOC borrowers can request reinstatement if we, unilaterally, have reduced or have frozen the line of credit (for the reasons in 12 CFR 1026.40(f)(3)(vi). However, if a borrower agrees to a reduction or freeze (often after requesting a subordination of lien), do we still have to make the same disclosure?
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We do not believe that the HELOC rules regarding the reduction or freezing of a credit line require you to disclose that a customer can request reinstatement of a credit line in connection with a written agreement to reduce or freeze the line. Regulation Z permits creditors to freeze or lower the credit limit for…
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Do we need to give the right of rescission to an individual who is the trustee of the trust that owns the property securing the loan?
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No, we don't believe that the right of rescission (ROR) would apply. Regulation Z exempts all extensions of credit that are not made to natural persons (in addition to exempting all business-purpose credit), and we agree that a trust should not be considered a natural person. See 12 CFR 1026.3(a)(2) and Comment 10, Official Staff…
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Is a document preparation fee considered part of the finance charge for non-real-estate loans?
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We believe that a document preparation fee would be considered a finance charge, as it would not be charged in a comparable cash transaction and does not fall into any of the categories that are exempted from the definition of a finance charge. 12 CFR 1026.4(a). Of course, document preparation fees charged in a real…
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Is there an Illinois law that allows banks to collect prepaid interest starting on the loan closing date, rather than on the disbursement date?
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Regulation Z allows interest (finance charges) to accrue at the loan closing and does not require you to wait until the expiration of the rescission period (provided that your loan agreement allows for this). Comment 3(iii), Official Staff Commentary, 12 CFR 1026.15(c), 12 CFR 1026.23(c). As to Illinois law, there are very few limitations on…