(iii) Open-end credit plans. If the terms of an open-end credit plan provide for a repayment period during which no further draws may be taken, the limitations in paragraph (d)(1)(i) of this section do not apply to any adjustment in the regular periodic payment that results solely from the credit plan’s transition from the draw period to the repayment period. If the terms of an open-end credit plan do not provide for any repayment period, the limitations in paragraph (d)(1)(i) of this section apply to all periods of the credit plan.

3. No repayment period. If the terms of an open-end credit plan do not provide for a repayment period, the repayment schedule must fully amortize any outstanding principal balance in the draw period through regular periodic payments. However, the limitation on balloon payments in § 1026.32(d)(1)(i) does not preclude increases in regular periodic payments that result solely from the initial draw or additional draws on the credit line during the draw period.

Probably a stupid question, but just want to make sure I am reading this right....

We offer interest only HELOCs with a balloon due at maturity. Our HELOC product is draw period only, no repayment period. If under the new HOEPA tests, the HELOC was subject to Section 32, does the section highlighted above mean that the regular periodic payments would now have to be some variation of principle and interest and amortizing?

If your HELOCs fall under the high cost mortgage rules, that is basically correct. All upfront fees also have to be paid upfront, no financing them. Also, the points and fees will be severely limited, no prepayment penalties, homeowners counseling, limited late fees and ability to repay rules will apply.

In other words, you pretty much need to stay under the high cost limits.

I think a lot of people think the changes only impact closed-end credit and this is going to be a big surprise to them.

When I first dug into this, I knew we would have to deal with all the other stuff you listed....then I came to the restrictions on balloon payments and realized that if we go over the thresholds of the HOEPA tests, we'd have to develop a whole new HELOC plan!

Thanks for confirming!

O boy! I haven't gotten to this yet but it will most likely affect us as well since we offer a Interest Only HELOC. Like yours Dani, it is set up for a draw period only. We don't have a lot of fees to the HELOC so hopefully it will stay under the high cost mortgage rules.

My concern is the rate. Ours is variable with a floor. The benchmark is the variable rate APOR that we have to try to stay under the APOR plus the spread. Haven't tested ours yet, so hoping it will be a non-issue. If not, easiest solution would be to adjust the floor, I think.

Well, you are looking at current rates based on today's APOR of 2.89% of 9.39% on first lien HELOCS over $50,000 and 11.39% on first lien HELOCS under $50,000 and those secured by subsequent liens. Those are pretty hefty rates in this environment.

Thanks for saving me the testing.

One quick question as I think I have confused myself on the variable rate test. The reg talks about using the fully indexed rate. That's just going to be our note rate (index plus margin) or our floor whichever is greater, correct? It does not mean worstcase scenario as in use our ceiling?

For example, highest price tier would be WSJ+3 with a floor of 6 ceiling of 24, rate can change monthly. We would use WSJ+3 or 6% whichever is greater for the APR test, correct?

Correct.

Thanks.

That is correct:

the interest rate that results from adding the maximum margin permitted at any time during the term of the loan or credit plan to the value of the index rate in effect as of the date the interest rate for the transaction is set, or the introductory interest rate, whichever is greater

Randy, I've been reading HOEPA and Homewownerhsip counsleing for 2 days now, so perhaps I am misreading your statement. But I read the regulations to mean the less than $50,000 carve out only applies to personal property loans. If I have a first lien on a house and real property for $30,000 wouldn't I still use the 6.5%?

MarkB

Yep - you are absolutely correct, I failed to recognize the personal property reference.