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#735923 - 05/18/07 05:31 PM What am I rescinding?
Laketime Offline
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Joined: Aug 2002
Posts: 554
Good afternoon all.

I need a little clarification before I change the RoR procedures at our bank. Say for example a customer wants to refi their 5 year HELOC for another 5 year term- no new money. They owe the full amount of the line - $40,000. They complete an application, we pull a credit report, send everything through underwriting, make the credit decision to approve it and create a new HELOC agreement that they sign. Based on previous threads (because their is no RoR exception at 226.15(f)(open end credit) like there is at 226.23(f)(closed-end credit) it appears lthat we need to give them a RoR even though no new money is being advanced (the new HELOC is the same amount- $40,000). My question is what would they be rescinding? Because if they did rescind the new transaction wouldn't we be forced to say "If you rescind the transaction then you must pay us the $40,000 you currently owe?"
Help!

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#736178 - 05/18/07 07:11 PM Re: What am I rescinding? Laketime
Tom at HOME Offline
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Review the H-9-Rescission Model Form (Refinancing With Original Creditor).
It says "If you cancel this new transaction, it will not affect any amount that you presently owe. Your home is the security for that amount." It only rescinds the new transaction and not the former transaction.

Don"t send the wrong notice or you may be in trouble.

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#736285 - 05/18/07 08:04 PM Re: What am I rescinding? Tom at HOME
David Dickinson Offline
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Central City, NE
Quote:
My question is what would they be rescinding?

The new HELOC.

Tom: While I agree that a lender should try to get the correct RofR, I've always said that a RofR is a RofR is a RofR. The BOL daily briefing listed a recent court case that supports this. see "Santos/Rojas vs. Doral Mortgage Corporation" at BOL's Court Watch.
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#736775 - 05/21/07 02:18 PM Re: What am I rescinding? David Dickinson
Laketime Offline
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Joined: Aug 2002
Posts: 554
Thank you Tom and David for your responses, But I would like to beat this horse just a bit more.

Last week I attended a meeting of approximately 10 local compliance officers (fairly talented group- some were ex-emainers, consultants, etc.). When I brought up the topic of RoR on refinanced HELOCs no one knew what I was talking about. I mentioned that I had seen the topic on BOL about a year ago (thanks mostly to BOL gurus DD and RC) and was considering changing our procedures to ensure the RoRs are included on all refi's whether the line amount is increasing or not. None of them seemed at all concerned about maintaining their current procedures which is to NOT include RoRs when the line is not increasing. My questions are as follows:

1.Have examiners been citing the lack of RoRs in HELOC refi's where the line is not being increased?

2. What is the worse case scenario/risk if a bank does not provide a RoR on a HELOC refi? (i.e., does the customer have 3-years to state that their RoR rescission rights were violated at the time of the refi and the bank loses three years of interest, any fees charged for the refi AND loses their security interest in the home?????).

I'm just trying to manage the risk (of not providing the RoR on HELOC refis) that others in my compliance group seem to be fine with.

Over the years I have handed out several RoR cheatsheets (one an article in ABA Compliance magazine) that my lenders and loan document preparers use as references. None of the cheatsheets indicates a RoR should be given for a refi of a HELOC- no new money. I don't want to change procedures (and confuse everyone) unless it makes sense from a risk perspective.

All responses appreciated.........

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#740358 - 05/25/07 02:44 PM Re: What am I rescinding? Laketime
cwg Offline
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Joined: Aug 2006
Posts: 48
South Central Wisconsin
We had added a new fixed HELOC program to our product mix. Last summer the FDIC Chicago Regional Office examined our program. They reviewed loans that had increases in extension when the people converted the program and loans that stayed the same.

We currently don't get the ROR if we had a existing HELOC and they were keeping the same credit line. We don't satisfy the mortgage and we reference the existing mortgage in our loan documents.

They did not criticize us for not getting the ROR.

Charlie
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#740408 - 05/25/07 03:08 PM Re: What am I rescinding? cwg
rlcarey Online
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Galveston, TX
Charlie,

If all you were doing is modifying an existing HELOC with no increase in the credit limit - then no RofR would be required.

Laketime,

1.Have examiners been citing the lack of RoRs in HELOC refi's where the line is not being increased?

Yes - if the current plan has matured and is being replaced by a new plan rather than a modification of an existing plan.

2. What is the worse case scenario/risk if a bank does not provide a RoR on a HELOC refi? (i.e., does the customer have 3-years to state that their RoR rescission rights were violated at the time of the refi and the bank loses three years of interest, any fees charged for the refi AND loses their security interest in the home?????).

That about sums it up.
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#741216 - 05/25/07 10:32 PM Re: What am I rescinding? cwg
David Dickinson Offline
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Central City, NE
Originally Posted By: Charlie Geimer
They did not criticize us for not getting the ROR.

That doesn't make it right. If you replace the HELOC with a new HELOC, the RofR is required.
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#1131420 - 02/18/09 03:19 AM Re: What am I rescinding? David Dickinson
Jan94 Offline
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Joined: Mar 2001
Posts: 828
USA
This is an old thread that I came across and have somewhat similar question and would appreciate any guidance. We are getting ready to discontinue several of our existing HELOC plan offerings. We expect we will have situations where the customer is in an old plan and the intent will be when the loan is up for renewal or refinance, we will move the customer into a new plan. We will provide new plan disclosures and the customer will sign a new agreement; however the question is whether ROR will be applicable? The bank is not necessarily agreeing since the previous loan will not have matured; however I had indicated to them that as it is going into a completly new plan ROR would be required. There will be no new money involved and my understanding is that the customer will just be rescinding the plan itself and not the loan amount. The bank is concerned about having to do this and I just want to be sure I'm not overlooking something. Thank you for your help.

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#1131544 - 02/18/09 03:04 PM Re: What am I rescinding? Jan94
Dan Persfull Offline
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Bloomington, IN
Quote:
We will provide new plan disclosures and the customer will sign a new agreement; however the question is whether ROR will be applicable?


The new agreement will be satisfying and replacing the existing agreement therefore you have a refinancing. The ROR will apply.

The borrower has the right to rescind the new plan and continue repaying the old plan under its terms and conditions.

No where in Subpart B of Reg Z will you find an exemption from the ROR for these transactions.
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#1131879 - 02/18/09 07:36 PM Re: What am I rescinding? Dan Persfull
Jan94 Offline
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USA
Dan - not sure I understand "repaying the old plan under its terms and conditions"? The new plan will have different terms and conditions (i.e. go from a 2% repayment to interest only) or go from 2% repayment to a plan that offers fixed rate options.

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#1131883 - 02/18/09 07:39 PM Re: What am I rescinding? Jan94
Skittles Offline
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TN
He means they retain their original loan with the original repayment terms.
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#1132033 - 02/18/09 08:56 PM Re: What am I rescinding? Skittles
Jan94 Offline
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Joined: Mar 2001
Posts: 828
USA
Ok, I'm sorry I'm being so dense - but how are they continuing to repay under the old plan when the new plan has different terms? If they don't rescind the new plan, then they are subject to the terms of the new plan are they not? Maybe I'm misunderstanding "terms".

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#1132047 - 02/18/09 09:04 PM Re: What am I rescinding? Jan94
Dan Persfull Offline
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Bloomington, IN
If they do not rescind the new plan then yes they pay under the terms of the new plan, however if they do rescind then the new plan has to be canceled and the old plan has to be reinstated to allow them to continue under its terms.
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#1132205 - 02/18/09 10:37 PM Re: What am I rescinding? Dan Persfull
Jan94 Offline
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Joined: Mar 2001
Posts: 828
USA
Got it! Thank you for helping me understand.

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#1136138 - 02/25/09 10:26 PM Re: What am I rescinding? Dan Persfull
Jan94 Offline
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USA
My "got it" moment didn't last very long. I'm being challenged by the bank on this. I was told today that in a situation where a customer is renewing their existing HELOC (it has not yet matured) into a new HELOC "plan" (from old 5 year draw/10 year repayment to new 35 month interest only) that they have not been providing right of rescission when there is no new money involved. I've tried to explain they are replacing the existing agreement and basically have a refinance. But since there is no new money they didn't think this was required. We're also not satisfying the mortgage.

Quote:
No where in Subpart B of Reg Z will you find an exemption from the ROR for these transactions.


So there is nothing "official" that supports this? What sort of rescission document do you provide? If the line has not yet matured, would it still be the one "refinance with the original creditor"?

If the customer is just rescinding the "plan", what about the effect to the security interest as indicated in 226.15(d)? See paragraph 2. where it provides that "if the consumer's right to rescind is activated by the opening of a plan, any security interest in the principal dwelling is void." Wouldn't this be related to the opening of a new plan? Do we lose our security interest if they rescind the "plan"?

Thank you for your help.

Last edited by Gem19; 02/25/09 10:26 PM.
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#1136380 - 02/26/09 03:10 PM Re: What am I rescinding? Jan94
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
Quote:
I was told today that in a situation where a customer is renewing their existing HELOC (it has not yet matured) into a new HELOC "plan" (from old 5 year draw/10 year repayment to new 35 month interest only) that they have not been providing right of rescission when there is no new money involved. I've tried to explain they are replacing the existing agreement and basically have a refinance. But since there is no new money they didn't think this was required. We're also not satisfying the mortgage.


Satisfying the mortgage plays no roll in whether you have a refinancing or not. It' whether the obligation (the note) is satisfied and replaced with a new obligation (note).

Your original post implies you are refinancing these transactions. If that's the case then I stand by what I have said. New disclosures and the ROR apply. If you are only modifying the terms of the obligation, before its scheduled maturity, then you need to review the Commentary to 226.5b(2) and also 226.9(c) and its Commentary.

Quote:
No where in Subpart B of Reg Z will you find an exemption from the ROR for these transactions.

So there is nothing "official" that supports this?


Nothing official to support what? My statement is stating you will find nothing in Subpart B of Reg Z, which regulates open-end credit, the exemption from the ROR for no new money as you will find in Subpart C of Reg. Z which regulates closed-end credit. The exemption simply does not exist in Subpart B.

Quote:
If the customer is just rescinding the "plan", what about the effect to the security interest as indicated in 226.15(d)? See paragraph 2. where it provides that "if the consumer's right to rescind is activated by the opening of a plan, any security interest in the principal dwelling is void." Wouldn't this be related to the opening of a new plan? Do we lose our security interest if they rescind the "plan"?


If you filed a new mortgage for the new plan then yes you must release that mortgage and reinstate the old one. They can only rescind the terms of the new plan. They cannot rescind the terms of the old plan.
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