Topic: Truth in Lending Act (TILA)
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We extended a purchase money bridge loan secured by the borrower’s current dwelling and the new dwelling being acquired. The promissory note and mortgage on the current dwelling were signed and dated three days before we disbursed the loan proceeds to allow for the three-business-day right-of-rescission (ROR) period to pass. The mortgage on the new dwelling was signed and dated on the date of disbursement, when the borrower acquired the new dwelling. However, our auditors told us the ROR documents were invalid since the borrower was not provided with the mortgage on the new dwelling to sign and date three days before the closing, as the borrower must review all documents related to the transaction three days before the purchase closing. If the auditors are correct, how can these types of mortgage transactions be properly executed?
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We do not believe the right of rescission requirements in Regulation Z require you to provide and have the borrower sign “all documents related to the transaction” three days before the closing or that the failure to have the borrower sign the mortgage on the new dwelling three days before the closing invalidated your ROR…
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Is a non-borrowing spouse required to sign a Closing Disclosure (CD) on a refinance if the spouse has an ownership interest in the property securing the mortgage loan? I know we must give the spouse a copy of the CD, but I cannot find anything that states we must have them or the borrower sign the bottom. Additionally, our notice of right to cancel states that the customer has the right to cancel within three business days of the latest of three events. One of these events is “[t]he date you receive the Truth in Lending Disclosures.” Is this referencing the loan estimate (LE) or CD?
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We do not believe that the non-borrowing spouse would be required to sign a CD regardless of the circumstances of the transaction, as signatures on CDs are optional under Regulation Z. However, note that Fannie Mae and Freddie Mac recommend obtaining the borrowing spouse’s signature as a “best practice,” and some private secondary market investors…
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Does a mobile home loan need to comply with Regulation Z’s higher-priced mortgage loan (HPML) and ability-to-repay (ATR) requirements even if the mobile home is not affixed to land? If yes, how do we show compliance? Our mobile home loan is secured by only a promissory note with title and is not secured by a mortgage.
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Yes, we believe that a loan secured by a mobile home used as a residence must comply with Regulation Z’s HPML escrow and ATR requirements, even if not affixed to land. However, we do not believe a loan secured by a mobile home needs to comply with Regulation Z’s HPML appraisal requirements. Under Regulation Z,…
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We have a borrower who is building a second dwelling on their property that they intend to live in after construction is completed. We will be financing the construction of that dwelling and taking the dwelling and land as collateral. Currently, the borrower is living in a dwelling located on the same property, but this dwelling will be destroyed after construction is completed. We are not taking a security interest in the first dwelling and its value is omitted from the property’s appraisal. Do we need to provide a right of rescission?
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We do not believe that you need to provide a right of rescission for the borrower’s construction loan, as it would be considered a non-rescindable residential mortgage transaction under Regulation Z. Regulation Z states that the right of rescission does not apply to residential mortgage transactions, which include loans secured by security interests in the…
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Are we allowed to require the customer to pay the pair-off fee if they decide not to go through with a loan after we lock a rate in the fixed rate market? If so, do we need them to sign a lock-in agreement prior to locking? We are currently not requiring this.
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We believe that your bank may charge your customers pair-off fees provided in a lock-in agreement. However, we recommend that any lock-in agreements between you and your customers be signed by your customers and in writing, including any provisions requiring payment of pair-off fees. As a national bank, your bank is permitted by OCC regulations…
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We are an out-of-state bank that purchased an Illinois bank, which will merge into our bank. Do we need to send mortgage transfer notices as required by the Illinois Banking Act to mortgage customers from the Illinois bank if the only thing that will be changing for them is the name of the institution they will be corresponding with? We will continue receiving and processing mortgage payments at the same location and phone number. Or does Illinois law not apply since we are an out-of-state bank?
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We believe that your bank is required to send transfer notices for residential mortgage financing transactions under the Illinois Banking Act, in addition to potentially sending notices under Regulation X and Regulation Z, as well as Regulation P. Under the Illinois Banking Act, any bank making residential mortgage financing transactions is required to send written…
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Are we required to retain undeliverable mail that has been returned by the post office? If so, what kind of mail should we be retaining and for how long? We have read that if we can reproduce the mailing (such as an account statement) on request, then we can shred it immediately.
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA. We are unaware of any recordkeeping requirements specifically for mail that has been sent to…
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If a customer is required to get housing counseling due to a special loan program our bank offers, is the housing counseling fee charged to the customer considered a prepaid finance charge? In a cash transaction, this loan program would not be used.
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Yes, we believe that the fee would be considered a prepaid finance charge under Regulation Z, as the housing counseling and payment of the associated fee is required as part of your special loan program and because the fee would not be paid in a comparable cash transaction. Under Regulation Z, a finance charge is…
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Due to a change in vendor, we may have to change our 5/1 adjustable-rate mortgage (ARM) to a 5/5 ARM. Our 5/1 ARMs set maximum percentage amounts for the initial rate change and rate change over the life of loan. If we switch to a 5/5 ARM, can we raise the initial rate change and life of loan rate change caps for future loans?
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We believe that your bank may charge a higher initial rate and raise the life of loan cap on the interest rate of your adjustable-rate mortgages. Of course, if the rate is raised too high, it may be considered a high risk home loan or a high-cost or higher-priced mortgage, subject to additional requirements and…
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We are refinancing a mortgage loan secured by the primary dwelling of a non-married couple who are living together. Only one of the two has signed the mortgage and deed, but both will be signing the note for the refinancing. We know that the borrower who appears on the deed should sign the right of rescission, but should the other, non-owner borrower sign the right of rescission as well?
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We do not believe that the non-owner borrower should receive notice of the right of rescission required by Regulation Z. To be considered a “consumer” entitled to a right of rescission under Regulation Z, a person must have an ownership interest in the dwelling that is encumbered by the creditor’s security interest. As the individual…