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#1115760 - 01/23/09 01:34 AM HELOC Floors
Anonymous
Unregistered

I could really use some help. We have a floor on our HELOC plans but am trying to understand whether we are required to disclose it in the early plan disclosures. I've gone through several of the threads where it appears we do. But I thought I recalled reading something that said we would not. I've gone back through and reading Reg Z and the commentary and I'm not finding anything relating to floors only the maximum rate and the increase in rates. I found this through a search on BOL and am now really confused. Could someone please help me understand?

Floor and Ceiling Rate Disclosures
Answer by Lucy Griffin, BOL Guru
Guru Bios

Question: Does the floor and ceiling rate need to be on the actual note or a separate form of disclosure?

Answer: Truth in Lending requires that you disclose the rate cap, the ceiling rate for a dwelling-secured loan. You do not have to disclose the floor. The trick here is that TILA is a disclosure only. The rate cap must be part of the note or it doesn't exist. TILA requires you to have a rate cap for all ARMs and HELOCs so make sure those are in the note as well as the disclosure.

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#1115927 - 01/23/09 03:16 PM Re: HELOC Floors Anonymous
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,844
Bloomington, IN
The floor rate is a rate limitation that will affect how the rates and payments would be disclosed in the historical example.


From the Commentary to 226.5b(d)(12)(xi):


5. Rate limitations. Limitations on both periodic and maximum rates must be reflected in the historical example. If ranges of rate limitations are provided under 226.5b(d)(12)(ix), the highest rates provided in those ranges must be used in the example. . . . .
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#1157152 - 04/03/09 02:05 PM Re: HELOC Floors Dan Persfull
travelgirl Offline
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Joined: Mar 2004
Posts: 223
Minnesota
I too am struggling with the HELOC floor issue. Dan, I saw in another post you eluded that if the floor that was actually given at closing was lower than the floor on the intial program disclosure, then you have a new plan that would require its own program disclosure.

Up until now, our HELOC's have had a floor of 5%. Management would now like the option of a %5 AND a 6% floor. We may not know until closing which floor the customer will receive so how do I know which program disclosure to give at application if I don't know what floor they will have? Giving two seems like overkill when the only difference is the floor - the consumer will be more confused than ever. (yes, I know we also have to be careful of fair lending issues, but just suppose that's not entered into the mix).

While your earlier statement about a new plan makes sense, I don't see the harm to the consumer if we disclose a floor of 6% but in some cases it actually ends up being 5%. I also don't see any consumer coming back to us under 226.5b(g) for a refund when they are getting better terms.

What I do see as more of a problem is if we have two program disclosures - one at a 5% floor and one at a 6% floor - and our staff gives the 5% floor disclosure, the loan ends up being at 6% and we don't redisclose. Or they just don't pay attention as to what disclosure they are giving. The other issue is we provide HELOC applications on our website and we do provide the program disclosure there...if we have to have multiple disclosures, the consumer is going to have no clue which one appies since they will look exactly the same except for the floor rate (not that they read the stuff anyhow).

Any suggestions or thoughts?

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#1157216 - 04/03/09 03:04 PM Re: HELOC Floors travelgirl
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 79,637
Galveston, TX
"While your earlier statement about a new plan makes sense, I don't see the harm to the consumer if we disclose a floor of 6% but in some cases it actually ends up being 5%. "

You are going to lose business with this approach. Also, I don't understand why the decision is only made at closing? What are the criterion. This tells me that you might not want to "suppose" there are no fair lending risks.
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#1157272 - 04/03/09 03:44 PM Re: HELOC Floors rlcarey
travelgirl Offline
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Joined: Mar 2004
Posts: 223
Minnesota
Let me re-state, the floor may not be known at the time of application when the disclosure is required to be given.

It is my understanding that the factors in determining the floor include things like Loan-to-value and debt-to-income ratios. I did not mean to imply we would have no fair lending issues in doing this. Certainly the potential is there, but it's there in every loan we do and we've looked at the risks of doing this.

In a perfect world I'd have two program disclosures - one with a 5% floor and one with a 6% floor. The reality is though, that no matter how much you train your staff and monitor the situation, making the staff choose which disclosure to use leaves a lot bigger hole IMO for non-compliance than the fair lending issue or providing a dislosure at 6% and writing some loans at 5%. Yes, I know it's not perfect, but what we do everyday isn't perfect or we'd all be more crazy than we already are.

I guess I was looking for some other suggestions or ideas short of having to make available two identical disclosures other than the floor rate and leaving it up to the staff to choose. Yes, I know they are trained and need to be held accountable, etc, but the fact of the matter is, there are other higher risk areas (flood, cra/hmda data integrity, finance charge calculations) where the constant preaching is more necessary.

I hope my tone doesn't come across in a bad way...I'm just trying to make a risk decision and looking for some support. I do appreciate the feedback grin

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#1157317 - 04/03/09 04:22 PM Re: HELOC Floors travelgirl
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 79,637
Galveston, TX
Why don't you just combine the disclosures and include both programs in one document.
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#1157464 - 04/03/09 06:02 PM Re: HELOC Floors rlcarey
travelgirl Offline
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Joined: Mar 2004
Posts: 223
Minnesota
So instead of a three page document I have a six page document. On page one I state basically "HELOC program disclosure - 5% floor" and at the top of page 4 I state" HELOC Program Disclosure - 6% floor?"

I provide this 6 page document to all HELOC applicants?

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#1157492 - 04/03/09 06:24 PM Re: HELOC Floors travelgirl
RR Joker Offline
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RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
If all your parameters are the same with the exception of the floor...why would it make your disclosure that much different? You could produce a table that consists of both floors...your payment example only needs to show the max payment and your rate changes section could show which floor applies to which category a person falls under. I'm thinking it could also only be reflected in the table, howeer if you want to be really clear you could describe when/how they apply in the disclosure.
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#1157511 - 04/03/09 06:38 PM Re: HELOC Floors RR Joker
travelgirl Offline
100 Club
Joined: Mar 2004
Posts: 223
Minnesota
Thanks RR. Our disclosures are produced through ARTA Lending and I'm not certain if there is an option for multiple floor rates or an option to insert a chart or something of that nature.

I like the idea though and will pursue it.

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#1157521 - 04/03/09 06:47 PM Re: HELOC Floors travelgirl
RR Joker Offline
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RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
aaahhh...you may well be correct...there are limitations on those for sure...
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Say you'll haunt me - Stone Sour

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