If a customer is trying to refinance their 1st mortgage and in order to do so they need to lower their HELOC limit with us can we do this with a simple modification agreement or do we need to give disclosures or a change in terms notice?

You can do this with a modification agreement.

Must we give new disclosures when modifying a HELOC?

4. Form of change-in-terms notice. A complete new set of the initial disclosures containing the changed term complies with §226.9(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.

If you are modifying it before it matures, no. If it has matured then it would be considered a new plan and all the applicable HELOC disclosures would be required.

If you are modifying it to a closed-end credit then you must provide all the applicable disclosures in Sub-part C of Reg Z.

Would this not constitute a change in terms causing a change in terms notice? Or since the customer is requesting the change does it not require a change in terms notice?

Yes, but depending on the timing of that change in terms dictates whether it's a modification or a refinancing which would require all new disclosures. Any modification, regardless at whose request, after the HELOC matures is a refinancing and requires all new Plan disclosures if remaining an open-end credit.

Converting (modifying) from a open-end HELOC to a closed-end HE is always treated as a refinancing regardless of the timing and all the required disclosure requirements of Subpart C to Reg Z are required..

Does the format of the change in terms notice need to be in the form of a new set of disclosures as stated below from the rule? Currently we just use modification agreement that states what is changing and is not in the form of the initial disclosures.
4. Form of change-in-terms notice. A complete new set of the initial disclosures containing the changed term complies with §226.9(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.

Maybe I'm misunderstanding what you are asking. Are you modifying the account or changing a term such as a billing period? The cite you are quoting has to do with an account term change, such as changing the billing period for your accounts, not modifying a specific account with a new rate, term, etc. That would be accomplished using a modification agreement which is also often referred to as a change in terms agreement.


PS. Keep in mind you can't change any terms of a HELOC without the express written consent of the borrower unless the change is a favorable change for the borrower.

We are lowering the limit because of a borrower request and receive written consent but when we do this we are not doing anything seperate of a modification agreement. So if this is considered a change-in-terms we are not providing a new set of initial disclosures.

As long as the HELOC has not matured and the borrower signs the modification agreement no other disclosures are required. The modification agreement will serve as your "change in terms" notice and will comply with 226.9(c)(1)(i).

That is what I thought but the part of the rule below made me think that the change-in-terms notice would have to be in the form of a new set of initial disclosures.

4. Form of change-in-terms notice. A complete new set of the initial disclosures containing the changed term complies with §226.9(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.

The credit limit is not a required disclosure under 226.6.

What if a customer request subordination and in order to issue the subordination we require the addition of a floor?

You can comply with 226.(c)(1)(i) by 1) providing the borrower with the modification agreement that specifically details the changes, or 2) A set of new initial disclosures that have the applicable changes high lighted in the appropriate sections to bring specific attention to those changes.

You do not have to provide both. And as Randy points out the LOC is not a disclosure requirement under 226.6.

If the borrower agrees to the addition of the floor in writing, and if the modification is done before the HELOC's maturity then new disclosures are not required. See the Commentary to 226.5b.

Thanks