Topic: Truth in Lending Act (TILA)
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Are there any state regulations regarding the language that appears in a customer’s periodic statement when their mortgage loan is in forbearance? We are a small servicer, and some of our customers are in forbearance with Freddie Mac due to COVID-19. They have signed a “Forbearance Plan Offer” form provided to us by Freddie Mac, which states that we will not pursue foreclosure during the term of the forbearance plan but that “the terms of your mortgage remain unchanged” and “you will become more delinquent,” among other information. We are not reporting these customers as delinquent to the credit bureaus, but our statements tally the “missed payments” in the “Overdue Payment – Total Amount Due” section and include a “Delinquency Notice” indicating that failure to bring the loan current may result in fees and foreclosure. Freddie Mac does not specify what goes on the periodic statements, and we have been advised to check state law.
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We are not aware of any Illinois law or regulation requiring certain language to appear on a periodic statement when a mortgage loan is in forbearance, and, as a small servicer, you are not required to comply with Regulation Z’s requirements for periodic statements. However, Regulation Z’s periodic statement requirements for large servicers may be…
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Are there any Illinois disclosure rules that would supersede Regulation Z’s Loan Estimate requirements with respect to rate-lock agreements? We are a national bank with locations in multiple states, and when reviewing Illinois law, we came across 38 Ill. Adm. Code 1050.1335.
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No, we are not aware of any Illinois requirements that would supersede Regulation Z’s requirements for disclosing rate-lock agreements in the Loan Estimate. The Illinois Administrative Code citation is from a section of the administrative rules for the Residential Mortgagee License Act of 1987 that addresses rate lock agreements and fees. However, that law and…
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Approximately two months ago, our commercial loan department made a construction loan to an individual borrower for the purpose of combining two condominium units (one of which the borrower currently resides in) and paying off the mortgage on the borrower’s unit. The construction loan has a nine-month term, payments are interest-only, and the loan will be paid off with a new residential mortgage loan. We treated the loan as a commercial loan and did not provide TILA/RESPA Integrated Disclosures (TRID) to the borrower. The borrower was charged the typical commercial loan fees, including a documentation fee and an origination fee. Can this problem be fixed, and do we owe the borrower restitution? Also, are we correct that this construction loan is not HMDA-reportable because it is temporary?
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We do not believe you can cure your bank’s failure to deliver the TRID disclosures; however, you may wish to reimburse your customer for the undisclosed closing fees charged in connection with the loan (here, because the borrower received no disclosures, this approach would require a refund of all closing fees, including the documentation and…
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Does amending or extending the terms of a balloon note after maturity require a new note and new disclosures? Do the rules differ for different loan types?
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Generally, whether amending and extending a balloon loan (or other type of loan) after maturity requires a new note and new disclosures depends on whether you are modifying or refinancing the loan. For consumer balloon (and other) loans, Regulation Z requires new disclosures when an existing loan is “refinanced,” which Regulation Z treats as a…
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We are modifying an adjustable rate mortgage (ARM) loan. Do we need to make new disclosures? The first interest rate and principal and interest (P&I) adjustments are due for 2023. We would like to reduce the interest rate margin and push the first interest rate and P&I adjustments to 2030. We are keeping the loan in our portfolio and have not sold it to an investor.
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Yes, we believe that this ARM loan modification adds new variable-rate features to the loan and will require new disclosures. Whether Regulation Z requires new disclosures for an ARM loan modification depends on whether the proposed modification is a “refinancing” (as defined by Regulation Z) and whether the modification will result in a new variable-rate…
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How should we disclose property taxes on the Closing Disclosure (CD) that are to be paid at closing if the current tax bill has not yet been issued and the loan has a tax escrow? In many counties, the tax bills may be issued less than two months before the taxes are due. If a loan is scheduled to close before the tax bill has been issued, should we disclose the amount of the prior year’s taxes in the “Prepaids” section of the CD? If the new taxes are higher than what was disclosed on the CD, can we take the additional amount out of the tax escrow? If so, do we have the option of preparing a short-year statement to reanalyze the escrow payment, or should we let the shortage go until the annual analysis and risk payment shock to the customer?
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We believe you should list property taxes that will be due within sixty days after the closing in the “Prepaids” section of the CD, and we recommend obtaining publicly available tax information directly from the county, when possible, rather than relying on the prior year’s property tax bill, which may be out-of-date. In addition, you…
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Are we required to provide a list of homeownership counseling organizations to applicants for Home Equity Lines of Credit (HELOCs)?
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Yes, Regulation X’s requirement to deliver a list of homeownership counseling organizations to loan applicants applies to HELOCs. For HELOCs that are federally related mortgage loans subject to both Regulation X and Regulation Z, you may comply with the Regulation X requirement to deliver the list no later than three business days after you receive…
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We are looking for guidance on loan modification fees. Is there a cap on how much we can charge a borrower for a modification of a home equity line of credit (HELOC) or an in-house mortgage loan modification?
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Generally, banks in Illinois may charge mortgage modification fees that are agreed to by the borrower, and we are not aware of a cap on such fees. Further, OCC regulations state that national banks may charge customers non-interest fees, and the amount of such fees is a business decision to be determined “according to sound…
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If we did not provide a right of rescission notice to a borrower in connection with a consumer mortgage loan in which the borrower received some cash back at closing, would a refinancing to pay off that cash portion extinguish the borrower’s right of rescission on the original loan?
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No, we do not believe that a refinancing of this loan would result in an expiration of the original rescission period (which would be three years if you failed to originally provide a right of rescission notice). Under Regulation Z, if “the required notice and material disclosures are not delivered,” the borrower’s right to rescind…
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As interest rates have dropped, many customers have asked for the interest rates on their loans to be lowered. For residential real estate loans, can we lower the interest rate and subsequent payment amounts with just a modification agreement rather than using new loan documents? We do not believe these modifications would be considered “refinancing” under the TRID Rule since we are not replacing the existing note with a new obligation or adding a variable rate feature. Also, are there any state laws that would prohibit us from only using a modification agreement and not providing new disclosures?
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Yes, we believe you can lower the interest rate and subsequent payments for a loan with a modification agreement rather than using new loan documents. We are not aware of any state laws that would prohibit you from using a modification agreement or require you to provide new disclosures if the original loan agreement is…