Topic: Truth in Lending Act (TILA)
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One of our directors is the President and CEO (but not an owner) of company that would like to borrow money from our bank. If the director has “control” of the company for purposes of Regulation O, we believe we will exceed our legal lending limit for this borrower. Are we correct that an individual can have “control” of a company without having an ownership interest in the company?
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Yes, we believe it is possible for a person to have “control” of a company, as defined in Regulation O, without having an ownership interest in the company. Under Regulation O, a person has control of a company if the person “owns, controls, or has the power to vote 25 percent or more of any…
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We qualify as a small servicer under Regulation Z. Are we required to provide monthly statements for all residential mortgage loans, or only for those that have escrow accounts? If monthly statements are required, can customers choose to not receive a monthly statement, or to receive an electronic statement only?
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We do not believe you are required to provide monthly statements for residential mortgage loans since you qualify as a small servicer under Regulation Z. Regulation Z contains an express exemption from the requirement to send periodic statements for residential mortgage loans when such loans are serviced by a small servicer — regardless of whether…
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A prospective loan customer would like to purchase a single-family home to use as an investment property. However, we believe the family will use the home as their residence within the next six to twelve months. Should we treat this loan as a consumer purpose loan and provide the required disclosures, or can we treat the loan as a business purpose loan based on the customer’s representation that the property will be used for investment purposes?
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We recommend reviewing the five factors in Regulation Z before determining whether or not this is a consumer-purpose loan subject to the TILA-RESPA Integrated Disclosure (TRID) requirements. While you are not required to further investigate the borrower’s statement of the loan’s purpose, which would be a business purpose, the borrower’s statement of purpose is just…
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A borrower has asked if we can increase the maximum loan limit on a maturing HELOC to save them the time and fees associated with obtaining a new loan. The borrower also would like to extend the maturity date and change the interest rate from variable to fixed. Is this possible?
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Yes, we believe it is possible to modify the terms of an existing HELOC before maturity to increase the loan limit, extend the maturity date, and change the interest rate from a variable rate to a fixed rate — provided the borrower signs a modification agreement reflecting these terms and they receive a notice of…
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Freddie Mac Guide Bulletin 2021-16 states that effective for mortgages with settlement dates on or after August 5, 2021, “Prorated tax credits cannot be considered when determining if the Borrower has sufficient funds for the Mortgage transaction.” Does this mean we cannot take these tax credits into account? If that is the case, we will have some borrowers who are unable to qualify for loans, as the amount due at closing reflected on the LE is higher than what the borrower will actually need.
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Yes, both Fannie and Freddie now prohibit lenders from considering prorated real estate tax credits when determining the funds required for a mortgage transaction. These prohibitions apply only to mortgages that will be sold to Freddie Mac or Fannie Mae or that are otherwise subject to their selling standards. Freddie Mac’s updated Single-Family Seller/Servicer Guide…
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How can prorated real estate tax credits be accounted for on the Loan Estimate (LE)? By not including this number as a debit or credit anywhere on page 2 of the LE we are having some borrowers who are unable to qualify for loans, as the amount due at closing reflected on the LE is higher than what the borrower will actually need, especially in areas where taxes are much higher.
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We believe that you may choose whether to disclose a property tax credit on the LE if the credit is for taxes that will be due before the first scheduled loan payment or within sixty days after the closing date. However, if the credit is for taxes that will not be due until more than…
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An examiner told us we had violated the Home Ownership and Equity Protection Act (HOEPA) by treating certain mobile home loans as auto loans. When a loan secured by a mobile home that has not been permanently affixed to the ground but rather rests on a slab and can have its wheels reattached, we treat the loan as a vehicle loan. Are these types of loans subject to HOEPA?
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Yes, we believe that mortgages secured by mobile homes — whether or not they are permanently affixed to real property — are subject to HOEPA coverage if the mobile home is the consumers’ primary residence. Mortgage loans classified as “high cost” under the HOEPA regulations may include any consumer credit transaction secured by a consumer’s…
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In our area, real estate sales contracts often require the seller to pay the owner’s title insurance premium. The title company typically provides a simultaneous issue discount. However, one local title company was recently purchased by an out-of-state company that does not provide simultaneous issue discounts and will not provide a TRID calculation sheet showing the fees without a simultaneous issue discount. Instead, it provides the actual amounts of the lender’s and owner’s policy premiums with no corresponding seller credits. Does Illinois law require us to reflect the seller credit on the Closing Disclosure (CD)? When we checked with the title company, they confirmed that there were no simultaneous issue discounts built into the premiums.
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We are not aware of an Illinois law requiring disclosure of seller credits or imposing particular disclosure requirements for title insurance premiums. Under the TRID requirements in Regulation Z, when a seller has agreed to pay the owner’s policy premium — and no discounts are being offered — the seller’s credit should reflect the full…
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How should we complete the “Rate Lock” section of the Loan Estimate (LE) for our in-house loans? Our files do not include separate rate lock agreements, and our loan committee approves the rates for our in-house loans. Our auditors noted that our LEs for these loans do not show the rate as locked and recommended that we either check the rate lock box “yes” at the time the LE is issued if we will not be changing the interest rate or check the box “no” until a decision has been made and then provide a new LE with the box checked “yes” once the rate is confirmed. However, we don’t believe a rate approved by our loan committee meets the regulatory definition of a “rate lock.” Are we correct in marking the box “no” in such cases?
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Yes, we believe you are correct in marking the rate lock box “no” in all cases where you have not entered into a written rate lock agreement with the customer. Under Regulation Z, marking the rate lock box “yes” on the LE is appropriate only when the customer has signed a written rate lock agreement.…
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Under Regulation Z, servicers have the option of disclosing the amount due on a billing statement as either the full payment due according to the promissory note or the new payment due under a temporary loss mitigation agreement. However, our vendor provides only the option to bill for the full payment due under the note. This poses a credit reporting issue for us, since the Credit Reporting Resource Guide states that when reporting an account in forbearance, we should report the scheduled monthly payment amount as the new payment due. How should we handle this? We are not a small servicer.
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We believe it would be permissible to provide a customer in forbearance with a periodic statement reflecting the full payment due under the note while reporting the amount due under a temporary loss mitigation agreement to the credit reporting agencies — although we realize that the discrepancies between your periodic statements and amounts reported to…