Skip to content
BOL Conferences
Thread Options
#1533745 - 04/11/11 01:12 PM HELOC Modification
Whatup Offline
Gold Star
Joined: Feb 2003
Posts: 379
We are starting to "term-out" many of our variable-rate, interest only, open-end HELOCs to fixed-rate, closed-end, amortizing loans. We are not doing a new loan to pay out the existing. We are doing a change in terms agreement to the original Credit Agreement. All of the HELOCs are 1st or 2nd liens on primary residence.

Do we need to provide RESPA Early Disclosures and a TIL, and adhere to all timing requirements?

Return to Top
Lending Compliance
#1534299 - 04/12/11 02:54 PM Re: HELOC Modification Whatup
Whatup Offline
Gold Star
Joined: Feb 2003
Posts: 379
Bump

Return to Top
#1534302 - 04/12/11 02:59 PM Re: HELOC Modification Whatup
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
Converting a HELOC to closed-end credit is a refinancing and requires all the applicable disclosures under Subpart C of Reg. Z.

Refer to 226.5b and its Commentary. A search of the Lending Forum will also produce a number of previous discussions.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top
#1534319 - 04/12/11 03:13 PM Re: HELOC Modification Dan Persfull
Whatup Offline
Gold Star
Joined: Feb 2003
Posts: 379
HELP!

Below is the response that I am receiving from my 'powers that be' and I am confused as to which disclosures I am to do:

"I researched the matter and RESPA does not apply because this is a modification (the existing note is modified but not cancelled, and the interest rate is not modified from a fixed interest rate to a variable interest rate.)

Also, Regulation Z will only apply if the loan is secured by a consumer's dwelling and are RESPA covered loans.

These are the reasons I said we did not have to worry about the disclosures."

Return to Top
#1534346 - 04/12/11 03:35 PM Re: HELOC Modification Whatup
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
Your "powers that be" are sorely mistaken.

From the Commentary to 226.5b:

If the consumer and creditor enter into an agreement during the draw period to repay all or part of the principal balance and the amount of available credit will not be replenished as the principal balance is repaid, the creditor must give closed-end credit disclosures pursuant to subpart C for that new agreement. In such cases, subpart B, including the substantive rules, does not apply to the closed-end credit transaction, although it will continue to apply to any remaining open-end credit available under the plan.

The closed-end modification agreement satisfies and replaces the open-end credit agreement therefore you have a refinancing under both Reg Z and RESPA.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top
#1534360 - 04/12/11 03:51 PM Re: HELOC Modification Dan Persfull
Whatup Offline
Gold Star
Joined: Feb 2003
Posts: 379
Thank you Dan. This confirms my belief, so I will be disclosing.

Return to Top
#1536715 - 04/18/11 03:46 PM Re: HELOC Modification Whatup
ComplianceFL Offline
Junior Member
Joined: Apr 2009
Posts: 37
I have a question about an existing HELOC acquired during a bank merger that is maturing this month. The acquiring bank would like to extend the HELOC by converting it into their HELOC plan. My question is could this be a renewal/extension of the existing plan if we renew it prior to maturity, obtain the customers written consent with regard to the changes and provide a 15 day advance notice for the change? Or would this be a refinance since the existing loan was made under the bank that was acquired and the new loan would be in the name of the acquiring bank? Thanks in advance for your comments!

Return to Top
#1536740 - 04/18/11 04:15 PM Re: HELOC Modification ComplianceFL
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
If the plan has not matured you can make any changes to it the borrower and FI agree to in writing. There would be no need for a 15 day change notice.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top
#1536802 - 04/18/11 04:47 PM Re: HELOC Modification Dan Persfull
ComplianceFL Offline
Junior Member
Joined: Apr 2009
Posts: 37
Thank you, Dan. I appreciate your guidance!

Last edited by ComplianceFL; 04/18/11 04:49 PM.
Return to Top
#1536848 - 04/18/11 05:08 PM Re: HELOC Modification ComplianceFL
ComplianceFL Offline
Junior Member
Joined: Apr 2009
Posts: 37
One additional question with regard to RBP, I've learned that there is a floor for the new HELOC, which will increase the interest rate. We did do a credit check as part of the change in terms. The floor is a program requirement and was not assigned based on credit. We use the credit score exception notices for RBP. Should we send the H3 notice to the consumer? This account was established prior to the RBP notice requirements; my thoughts are since we pulled credit we would need to provide a notice for the renewal. Thanks!

Return to Top
#1975698 - 11/12/14 03:24 PM Re: HELOC Modification Whatup
Red Raiders Offline
Diamond Poster
Red Raiders
Joined: May 2013
Posts: 1,069
Compliance Land
We currently treat our HELOC renewals as new transactions and give ROR and all applicable disclosures. Could we modify/change in terms these prior to maturity to extend the maturity date without it being a new transaction (subject to all the disclosures and ROR)? I know we can on a closed-end loan but wasn't sure if a HELOC was any different.
_________________________
How long until retirement?? smile

Return to Top
#1975703 - 11/12/14 03:34 PM Re: HELOC Modification Whatup
John Burnett Offline
10K Club
John Burnett
Joined: Oct 2000
Posts: 40,086
Cape Cod
Whether or not, and under what circumstances, you can modify a HELOC loan agreement to extend its maturity date is a matter of state law.
_________________________
John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8

Return to Top
#1991635 - 01/28/15 02:23 PM Re: HELOC Modification Whatup
Jsoconno Offline
100 Club
Jsoconno
Joined: Mar 2014
Posts: 176
North Carolina
The borrower signs a loan modification agreement to add a repayment term onto their HELOC replacing a balloon payment. Since the change is being agreed to, would a copy of the loan modification agreement suffice as notice required under 1026.9(c), or would a separate notice need to be provided to the borrower?

Also, because the borrowers are being modified prior to maturity and their draw-period terms are not changing, the notice should be able to be provided at the time of modification as that will always be before the effective date of the change.
Last edited by Jsoconno; 01/28/15 02:24 PM.
_________________________
Don't raise your voice. Improve your argument.


Return to Top
#1991656 - 01/28/15 02:57 PM Re: HELOC Modification Whatup
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
Jsoconno - I thought we beat this to death the last go-around or is this a different question??

http://www.bankersonline.com/forum/ubbth...114#Post1988114
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#1991684 - 01/28/15 03:36 PM Re: HELOC Modification Whatup
Jsoconno Offline
100 Club
Jsoconno
Joined: Mar 2014
Posts: 176
North Carolina
Updated: I do appreciate all you have done. I will hang my hat on this commentary from 1026.9

4. Form of change-in-terms notice. A complete new set of the initial disclosures containing the changed term complies with §1026.9(c)(1)(i) if the change is highlighted in some way on the disclosure statement, or if the disclosure statement is accompanied by a letter or some other insert that indicates or draws attention to the term change.

And recommend that we provide a letter to accompany the modification detailing the change in terms.
Last edited by Jsoconno; 01/28/15 03:54 PM.
_________________________
Don't raise your voice. Improve your argument.


Return to Top
#1991701 - 01/28/15 03:57 PM Re: HELOC Modification Whatup
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
IMHO - There is no "change in terms" involved in what you are trying to do.

You have a class of HELOCs that do not have a repayment period and have a balloon due at maturity. You are offering these consumers an opportunity to modify their HELOC prior to maturity to add a repayment phase to the existing HELOC.

The consumer either accepts your offer or they do not. If they accept your offer, you have them sign a modification agreement drafted by your legal counsel which would include all the necessary legal language to modify the current contract and establish the repayment phase accordingly and includes all additional disclosures for the added feature required under §1026.6(a). You may also have to modify your deed of trust or mortgage.

You don't deliver a change in terms notice, you have them sign the modification. If you have no agreement from the customer and if they do not sign the modification agreement, then you have to service the account as it is.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top

Moderator:  Andy_Z