Topic: Truth in Lending Act (TILA)
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Is it permissible to base loan originator compensation, at least partially, on the net return assets of a bank?
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The CFPB’s final loan originator compensation rules, when effective, will allow financial institutions to pay loan originators bonuses based on the bank’s net return on assets (or other measures of profitability), subject to two provisos: (1) bonuses would have to be limited to ten percent of each loan originator’s total compensation for the year, including…
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If we purchase the assets of a failed bank through the FDIC, do we have to send the Regulation Z Notice of Mortgage Transfer to borrowers?
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We believe that a bank would have to send Regulation Z mortgage transfer disclosures after acquiring residential loans through an FDIC purchase and assumption transaction. As stated in the rule commentary, “[d]isclosures are required under this section when, as a result of a merger, corporate acquisition, or reorganization, the ownership of a mortgage loan is…
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Can we charge a lien release fee on mortgage loans, and how much can we charge?
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The Illinois Mortgage Act provides lenders with three alternative methods of releasing a mortgage (765 ILCS 905/2): Delivering the release to the county recorder. *If the bank will be delivering the release to the county recorder, we recommend including the following statement on payoff statements: “Notice to All Persons: ___________(“Lender”) objects to the filing of…
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Can you review a draft advertisement from our marketing department for compliance with the marketing regulations?
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Unfortunately, we cannot review and approve any advertisements, as that would have to be done by your bank’s counsel. However, we can provide some general guidance on the regulations that apply to bank marketing. Regulation Z imposes several requirements on loan advertising, and the version of the advertisement you sent us does not meet all…
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Can we require loan originators to pay for the cures they cause or alter their compensation based on whether a loan is repurchased? Would this be affected by the type of loan?
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If the compensation structures you described are not related to the terms and conditions of the originators’ loans, they are permissible. In general, Regulation Z’s loan originator compensation rules prohibit certain incentive payments to loan originators as to closed-end consumer credit transactions secured by dwellings (“mortgage loans”). They also identify several permissible compensation methods. We…
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Because the OTS has stopped publishing its cost of funds (COF) indices, what should we use as a substitute index?
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The Federal Cost of Funds Index, or the FHLB’s 7th District Quarterly Index, may be the best replacements for the regional index you were using. When the OTS stopped publishing its cost of funds indices (due to its elimination under the Dodd-Frank Act), it issued a notice explaining that it would no longer be publishing…
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How can we determine whether a loan was a refinance or a renewal?
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The question of whether a second transaction was a “refinance” depends on an examination of the loan documents. The laws and regulations that would apply are as follows: Regulation Z and the RESPA regulations state that a refinancing occurs only when an existing obligation is “satisfied and replaced by a new obligation undertaken by the…
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Can we charge for credit life insurance single premiums up front after July 21, 2012? When does that rule go into effect?
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Section 1414 of the Dodd-Frank Act amended the Truth in Lending Act (TILA) to prohibit lenders from financing credit life insurance, with exceptions for insurance premiums “paid in full on a monthly basis” and for credit unemployment insurance (if other requirements are met). 15 USC 1639c(d). Section 1400 of Dodd-Frank states that these provisions will…
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Does Illinois restrict our bank’s ability under Regulation Z to accrue interest charges during the right of rescission period?
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In our view, the general rule is in the Illinois Banking Act, which states that banks may charge any interest or fees “subject only to the provisions of [Subsection 4(1)] of the Interest Act,” provided they are based on a bank’s “prudent business judgment and safe and sound operating standards.” 205 ILCS 5/5e. Moreover, Subsection…
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Can we reuse an appraisal that is four months old if it was prepared on behalf of a different institution?
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We do not believe that it is illegal to use an existing appraisal transferred from another lender for a new loan, provided that the appraisal “conforms to the Board’s appraisal regulations and is otherwise acceptable.” FRB Commercial Bank Examination Manual, Section 4140.1, p. 12