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#1563223 - 06/10/11 12:43 PM HELOCs and Prepaid Finance charges
Cats Offline
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Cats
Joined: Jan 2010
Posts: 192
Florida
We haven't done a HELOC in months (we mostly do commercial) and now we have a HELOC closing at 10:00 a.m. today. For the life of me I cannot remember if prepaid finance charges apply to open end credit. I'm thinking that it does so that the flood, tax service, and credit report fee should all be listed as Prepaid finance charges on the closing statement. It's only non-RE over $25,000 (soon to be $50,000) that are exempt from prepaids.

Am I remembering right? Sorry to ask, but reading the reg and looking at my little charts wasn't really helpful.
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#1563247 - 06/10/11 01:30 PM Re: HELOCs and Prepaid Finance charges Cats
Richard Insley Offline
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Richard Insley
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Toano, VA
Content of the settlement statement is governed by RESPA, not Reg. Z. The concept of a "finance charge" (and by extension a PFC) is governed by Reg. Z, not RESPA. From the RESPA perspective, a fee is a fee--all you have to do is categorize it correctly and get it in the correct column. As you know, Reg. Z's disclosure scheme for open-end credit is totally different from closed-end. A simple word search of Reg. Z will confirm that the term "Prepaid Finance Charge" does not appear anywhere in Subpart B.
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#1563263 - 06/10/11 01:38 PM Re: HELOCs and Prepaid Finance charges Richard Insley
Cats Offline
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Cats
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Florida
I know the term PFC doesn't show up in Subpart B, but it does in the General terms of Subpart A - specifically 226.4 on Finance Charges. Section 226.3 Exempt Transactions specifically says anything secured by real estate is not exempt but doesn't seem to differentiate between open end RE or closed end RE and that's what is getting me confused.

(b) Credit over $25,000 not secured by real property or a dwelling. An extension of credit in which the amount financed exceeds $25,000 or in which there is an express written commitment to extend credit in excess of $25,000, unless the extension of credit is:

(1) Secured by real property, or by personal property used or expected to be used as the principal dwelling of the consumer; or


We will leave all the fees as NOT prepaid finance charges for the closing. Thanks for answering so quickly!!
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#1563291 - 06/10/11 02:09 PM Re: HELOCs and Prepaid Finance charges Cats
Richard Insley Offline
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Richard Insley
Joined: Oct 2000
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Toano, VA
You're looking for an answer in the wrong place. Subparts A and B cover all types of consumer credit transactions, so these sections contain many references that are irrelevant to a particular transaction. "Credit card" is an excellent example. It's defined in Subpart A and is relevant in Subpart B, but is irrelevant when you get to Subpart C.

The concept of a PFC does not come into play in open end credit--including HELOCs. It's exclusively an element of closed-end Reg. Z disclosures. Likewise, the concept of PFC is foreign to RESPA.

I'm guessing the confusion stems from the data entry options set up in your loan/line closing software. Even if there's a "PFC Y/N" switch for each fee, your software will ignore this fee classification in all cases where you are closing a line of credit. The only time a PFC has any effect is when the software calculates the "Amount Financed" and APR for a closed-end credit transaction.
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#1563314 - 06/10/11 02:25 PM Re: HELOCs and Prepaid Finance charges Richard Insley
rlcarey Online
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rlcarey
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Galveston, TX
All charges must be disclosed in the initial disclosure: 226.6(a)(1)(iv) & (2) whether finance charges or not. As Richard indicated, your HELOC disclosure platform should take care of this. There is no "closing statement" for a HELOC.
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#1563326 - 06/10/11 02:33 PM Re: HELOCs and Prepaid Finance charges rlcarey
Cats Offline
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Cats
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Florida
All the charges were listed in the initial disclosures so we're okay there. When I say "closing statement" for the HELOC I'm actually referring to the HELOC Agreement And Disclosure and the Disbursement Request & Authorization forms the borrower will sign at closing as those are the ones that break out the fees.

I really appreciate you and Richard helping with this. Hopefully we'll be able to start doing more consumer on a regular basis so it'll be easier to remember!
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"There should be a critical duration time after which it is perfectly acceptable to bite someone like a raptor." D. Shepherd

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#1564236 - 06/13/11 07:53 PM Re: HELOCs and Prepaid Finance charges Cats
OnTheEdge Offline
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SmallTown, USA
You need to make sure fees suchs as orgination fees and LOL flood fees are disclosed as finance charges on the first periodic stmt.
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#1564327 - 06/13/11 10:18 PM Re: HELOCs and Prepaid Finance charges OnTheEdge
rlcarey Online
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rlcarey
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Galveston, TX
Only if charged to the line.
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#1564400 - 06/14/11 02:01 PM Re: HELOCs and Prepaid Finance charges rlcarey
OnTheEdge Offline
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SmallTown, USA
Yes, I should have been more explicit. If the first advance includes those fees, then they have to be on the first periodic stmt and identified as FC.
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