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Required Home Equity Disclosures
Kent R. Kluver, Senior Attorney, Bankers Systems, Inc.


Question: When handing out Home Equity applications what disclosures should we give our customers to stay in compliance?

Answer: Think Truth-in-Lending and the Real Estate Settlement Procedures Act.

Under Truth-in-Lending, if your home equity plans are open-end credit, special rules apply. The rules do three things:
  1. They require the creditor to give disclosures along with application forms and at the time of account opening.
  2. They restrict the creditor's rights to do certain things with respect to home equity plans.
  3. They impose restrictions on advertising home equity plans.
The application disclosures must be given at the time the creditor supplies the consumer with an application form. [Regulation Z, §226.5b(b)] However, the creditor may supply the disclosures within three business days after receiving the application¾if the creditor receives an application by telephone or through an intermediary, or if the application is in a magazine or other publication. [Regulation Z, §226.5b(b) fn 10a] (See our later section on providing disclosures electronically.)

There are two components to the application disclosures: a general information brochure and a more detailed disclosure. The general information brochure was written by the Federal Reserve Board and gives a general description of home equity plans. A creditor may either provide the Board's version of the brochure or the creditor's own version. [Regulation Z, §226.5b(e)] A creditor's version must be comparable to the Board's in substance and comprehensiveness. A creditor's version may contain more specific information about the creditor's particular home equity programs, however. [Commentary, §226.5b(e)-1]

The second component, the more detailed disclosure, is designed to give the consumer specific information about the programs offered by the creditor. A creditor may include the detailed disclosure in the application form itself. [Regulation Z, §226.5b(a)(1)]

If your home equity plan is closed-end, Truth in Lending does not require any disclosures accompany the application form.

RESPA does not require that any disclosures accompany the application form. RESPA does, however, require that you make certain disclosures within three business days after you receive or prepare an application. [24 CFR 3500.6(a)(1)] Those disclosures include a Special Information Booklet and a Good-Faith Estimate of Settlement Costs. But neither the Special Information Booklet nor the Good-Faith Estimate of Settlement Costs is really designed for open-end credit. So RESPA has special rules.

In open-end credit plans subject to Regulation Z (Truth in Lending), the lender may supply a copy of the Regulation Z at-application brochure we described above. This satisfies the requirement of supplying the Special Information Booklet and will make more sense to the borrower. Also, for an open-end credit plan subject to RESPA, the lender may satisfy the good-faith estimate requirement by supplying a copy of the Regulation Z detailed application disclosures for home equity plans we described above if the plan is subject to Regulation Z.

So, in short, provide the Regulation Z brochure and detailed disclosure and you should be fine.

About Bankers Systems
Established in 1952, Bankers Systems, Inc. is a leading national provider of compliance resource solutions for financial institutions and their legal counsel. The company’s deposit, lending, IRA software, documents, disclosures, training, and support services are used by more than 12,000 financial institutions, including 83 percent of banks in the U.S. In addition, over 70 leading core processors and software developers use Bankers Systems’ compliance-related documents and other components in their solutions. For more information, call 800-552-9410.

First published on BankersOnline.com 8/4/03
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