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#1815361 - 05/17/13 03:27 PM HELOC Help!
Reg Booster Offline
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Midwest
We are creating a 3 year HELOC product and I need some help determining how to set our disclosures. We will have one product but the floor of the HELOC will vary based on credit score. For instance, a score below 620 the floor would be 8.25 and there would be several tiers in between ending with a score better than 720 would be 3.75. The ceilings are all the same. So when completing the HELOC disclosure, under the section that lists the frequency of annual percentage rate adjustments, it notes the max APR will never go above a certain percentage, or go below X.XX% per annum at any time during the term of the Plan. So my question is - do we list the worst case scenario of 8.25, or the best case scenario of 3.75 in order to incorporate all the plans in this one disclosure? My gut tell sme 3.75 in an effort for full disclosure, but the majority of customers will be shocked when they don't fall under this plan because of their credit scores.

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#1815463 - 05/17/13 05:47 PM Re: HELOC Help! Reg Booster
Dan Persfull Offline
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Each floor constitutes a separate HELOC Plan and you must have a disclosure for each plan. The floor has an affect on how the rate and payments in the 15 year historical chart are disclosed.
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#1815467 - 05/17/13 05:53 PM Re: HELOC Help! Reg Booster
Reg Booster Offline
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If we do that, then how do we determine which set of disclosures are given. If we give them all possible disclosure packets, it would be some 20 pages (we wouldn't know which tier they fit into until underwriting). Wouldn't that be more confusing to the consumer. Is there any alternative to giving them this enormous amount of disclosure? Does it matter that we are only offering one three year product with these rate tiers, rather than different products entirely?

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#1815471 - 05/17/13 05:59 PM Re: HELOC Help! Reg Booster
KPOC Offline
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You don't pull credit until underwriting? I would pull it at application and then provide the appropriate disclosures.

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#1815487 - 05/17/13 06:16 PM Re: HELOC Help! Reg Booster
Reg Booster Offline
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No, we don't necessarily know when the applicant completes the application the resulting credit score. Sometimes our loan assistants physically have the application to give to the lender after the fact. I guess what I am questioning most is this - this is really only one plan (in my mind) - a three year HELOC with tiered rates. Could we not just list the spectrum of rates since it is only one and the rate depends on the credit score?

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#1815538 - 05/17/13 07:17 PM Re: HELOC Help! Reg Booster
Reg Booster Offline
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Is there even a requirement to include a floor? As i read through 1026.40, I only see a requirement to include the ceiling, and nothing that cites we are required to provide a floor. Would this effect the index chart? And what about the representative example? Could we take the most likely used rates and just provide one set of disclosures for all HELOC's?

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#1815542 - 05/17/13 07:35 PM Re: HELOC Help! Reg Booster
Dan Persfull Offline
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What you have are tiered programs.

(xi) An historical example, based on a $10,000 extension of credit, illustrating how annual percentage rates and payments would have been affected by index value changes implemented according to the terms of the plan. The historical example shall be based on the most recent 15 years of index values (selected for the same time period each year) and shall reflect all significant plan terms, such as negative amortization, rate carryover, rate discounts, and rate and payment limitations, that would have been affected by the index movement during the period.

8. Payment information. i. The payment figures in the historical example must reflect all significant program terms. For example, features such as rate and payment caps, a discounted initial rate, negative amortization, and rate carryover must be taken into account in calculating the payment figures if these would have applied to the plan. The historical example should include payments for as much of the length of the plan as would occur during a 15-year period.


If you don't include/disclose the floor then your historical example will not properly disclose how the rate and payments were affected by a change in the index during the previous 15 years. The floor rate is in essence a rate cap. Regardless of the index movement the minimum rate is capped at X% and your historical example must disclose that cap.



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#1815576 - 05/17/13 08:01 PM Re: HELOC Help! Reg Booster
Reg Booster Offline
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Could we put a chart in our single three year HELOC disclosure that shows the different levels rather than have a set of disclosures for each one?

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#1815590 - 05/17/13 08:15 PM Re: HELOC Help! Reg Booster
Dan Persfull Offline
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Yes. The Reg does allow you to do that.


4. Method of providing disclosures. A creditor may provide a single disclosure form for all of its home equity plans, as long as the disclosure describes all aspects of the plans. For example, if the creditor offers several payment options, all such options must be disclosed. (See, however, the commentary to §1026.40(d)(5)(iii) and (d)(12) (x) and (xi) for disclosure requirements relating to these provisions.) If any aspects of a plan are linked together, the creditor must disclose clearly the relationship of the terms to each other. For example, if the consumer can only obtain a particular payment option in conjunction with a certain variable-rate feature, this fact must be disclosed. A creditor has the option of providing separate disclosure forms for multiple options or variations in features. For example, a creditor that offers different payment options for the draw period may prepare separate disclosure forms for the two payment options. A creditor using this alternative, however, must include a statement on each disclosure form that the consumer should ask about the creditor's other home equity programs. (This disclosure is required only for those programs available generally to the public. Thus, if the only other programs available are employee preferred-rate plans, for example, the creditor would not have to provide this statement.) A creditor that receives a request for information about other available programs must provide the additional disclosures as soon as reasonably possible.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#2103040 - 10/14/16 04:01 PM Re: HELOC Help! Reg Booster
peony Offline
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bringing this up - we recently had an audit and they are writing us up for not disclosing the correct floor on the HELOC program disclosure that would match the floor on the note. example: HELOC program disclosure states 4.25% but the floor on the note states 4.5%. our HELOC program disclosures are disclosing the minimum floor rate you could have.

rates are based on the applicant(s)' credit scores. we won't know the applicant's credit score at the time we give the HELOC program disclosure.

i don't see anything in the reg about minimum floor rates but i do see about maximum - are we supposed to disclose the actual floor the applicant will be getting on the HELOC program disclosures??

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#2103052 - 10/14/16 04:28 PM Re: HELOC Help! Reg Booster
Docs Offline
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I think disclosure of a minimum rate would likely be necessary under 12 CFR 1026.40(d)(12)(viii): Any rules relating to changes in the index value and the annual percentage rate and resulting changes in the payment amount, including, for example, an explanation of payment limitations and rate carryover.

Since the minimum rate might change after the consumer receives the disclosure the underlined information below should probably be included in your disclosure, which might eliminate the problem.

12 CFR 1026.40
(d) Content of disclosures. The creditor shall provide the following disclosures, as applicable:
(1) Retention of information. A statement that the consumer should make or otherwise retain a copy of the disclosures.
(2) Conditions for disclosed terms.
(i) A statement of the time by which the consumer must submit an application to obtain specific terms disclosed and an identification of any disclosed term that is subject to change prior to opening the plan.
(ii) A statement that, if a disclosed term changes (other than a change due to fluctuations in the index in a variable-rate plan) prior to opening the plan and the consumer therefore elects not to open the plan, the consumer may receive a refund of all fees paid in connection with the application.
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#2103055 - 10/14/16 04:37 PM Re: HELOC Help! Reg Booster
peony Offline
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thanks for responding - we do have that statement on the disclosures that terms are subject to change.

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#2103059 - 10/14/16 04:49 PM Re: HELOC Help! Reg Booster
Dan Persfull Offline
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The statement Docs underlined is a required statement in the Plan Disclosure, however it would not eliminate the issue.

If you re-read the thread you will see my previous answers. Nothing has changed in the past 3 plus years to cause be to rethink my opinion.

I agree with the audit findings. The problem you have is you disclosed a 4.25% floor. You established a 4.5% floor therefore your historical example does not comply with the regulation and it (Plan Disclosure) does not reflect the terms of the Plan opened.
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#2103060 - 10/14/16 04:54 PM Re: HELOC Help! Reg Booster
Docs Offline
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Seems to me that you are covered if that statement includes everything required by the reg (refund language.) If so, then I would question why anyone is raising any issue - consider asking them to cite the regulation they are relying on, and reference your disclosure statement and 12 CFR 1026.40(d)(2)(ii). Just because someone says there is a problem does not mean they are correct. Even the best examiners and QC staff can be in error occasionally.
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#2103072 - 10/14/16 05:19 PM Re: HELOC Help! Reg Booster
Dan Persfull Offline
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(other than a change due to fluctuations in the index in a variable-rate plan)

The floor rate is affected by a fluctuation in the index. IOWs if the fully indexed rate is index + margin and if the index + margin goes below the stated floor then the rate (loan term) is affected by the movement in the index because the floor rate will kick in. This movement in the index and its corresponding payment must be reflected in the historical example.

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#2103105 - 10/14/16 07:09 PM Re: HELOC Help! Reg Booster
Docs Offline
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I agree with Dan. I was reading and writing too fast (again). The historical example needs to be plan-specific, and a different rate floor creates a different plan.

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#2103168 - 10/16/16 11:20 AM Re: HELOC Help! Reg Booster
rlcarey Online
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For those of you that have floors on your HELOCs, there is a specific reason that floor interest rates are not specifically mentioned in the regulations and I only bring this up as a caution.

First, you need to refer to 1026.40:

(f) Limitations on home equity plans. No creditor may, by contract or otherwise:

(1) Change the annual percentage rate unless:

(i) Such change is based on an index that is not under the creditor's control;

Second, you need to look to 1026.55 in which the Board defined that having a floor does make the rate under the control of the creditor. In the preamble to this part of the regulation (76 FR 22969), you will find:

"The Board continues to believe that, for consistency, it is appropriate to limit the variable rate exception to the change-in-terms notice requirements to only those rates that vary according to the operation of an index that is not under the control of the creditor and is available to the general public. The Board notes that for open-end (not home-secured) plans that are not credit card accounts under an open-end (not home-secured) consumer credit plan, the regulation does not prohibit variable rates that are subject to a minimum or ‘‘floor,’’ but for such rates the creditor must comply with the advance notice requirements of § 226.9(c)."

If you read between the lines, I don't think floors on HELOCs are in the best interest of the bank.
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#2112419 - 12/28/16 10:54 PM Re: HELOC Help! Reg Booster
L.A. Offline
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I am wondering if we have an issue with our HELOC disclosure. It is printing N/A under the Minimum Monthly Payment column for the "Historical Example." Please advise.

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#2112432 - 12/29/16 12:38 PM Re: HELOC Help! Reg Booster
rlcarey Online
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Unless you don't require them to make any payments, then yes, Houston we have a problem smile
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#2112453 - 12/29/16 03:04 PM Re: HELOC Help! Reg Booster
L.A. Offline
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Thank you.

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