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#1871955 - 11/17/13 10:49 PM HELOC rate cap
ibcbanker Offline
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Joined: Nov 2004
Posts: 17
Does the Reg Z-required "rate cap" on HELOC's end up being the "fully indexed rate" that is required for the HOEPA-coverage calculation for APR? In other words, ours is currently disclosed as 18% (a common rate cap). If we have to use this rate, every HELOC will be subject to HOEPA.

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HOEPA and Homeowner Counseling Rule
#1872019 - 11/18/13 03:03 PM Re: HELOC rate cap ibcbanker
John Burnett Offline
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John Burnett
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Cape Cod
If the rate on your HELOC is tied to an index, you use the fully-indexed rate (index plus margin) or the promotional-period rate, whichever is greater. If the margin can vary during the life of the extension of credit, use the largest value of the margin that can apply.

If there no index used (the rate can vary at the lender's sole discretion), use the 18% maximum rate.

In my experience, most variable-rate HELOCs are tied to an index.
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#1872095 - 11/18/13 04:39 PM Re: HELOC rate cap ibcbanker
ibcbanker Offline
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Joined: Nov 2004
Posts: 17
Yes, it is tied to an index - prime rate plus a margin. The index is fully floating and can change daily, however the margin does not change. We have no promo/intro rates.
So in our case, we would use the prime rate in effect on the date the rate was set plus the appropriate margin for our APR testing. Am I understanding this correctly? Thanks.

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#1872200 - 11/18/13 07:41 PM Re: HELOC rate cap ibcbanker
John Burnett Offline
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John Burnett
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Cape Cod
Yes, that's correct.
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#1872768 - 11/20/13 03:19 PM Re: HELOC rate cap John Burnett
gadawg1 Offline
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Joined: Sep 2006
Posts: 419
Georgia
I would like to follow-up on this. The interest rate in our equity lines is based on the Index plus the margin. We also charge a $250 loan fee. To calculate our APR for HOEPA, would we have to calculate based on a similar closed loan i.e. using the Index plus margin as the interest rate and the $250 loan fee and a similar loan amount to get the corresponding APR for HOEPA? Or do we consider the APR as the Index plus the margin?

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#1876568 - 12/05/13 11:05 PM Re: HELOC rate cap ibcbanker
Still Smiling Offline
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Joined: Nov 2007
Posts: 767
Very confused here...we too have a variable rate Heloc tied to WSJ that can change daily and our term is 60 months.

The Small entity guide states; For a variable-rate HELOC, the most closely-comparable closed-end transaction will be a variable-rate transaction with an initial, fixed-rate period that lasts approximately as long the introductory period, if any, on the HELOC. (If the HELOC has no initial, fixed-rate period, assume an initial, fixed-rate period of one year.)

What term will I use 60 month or 1 year?
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#1876573 - 12/05/13 11:23 PM Re: HELOC rate cap ibcbanker
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 80,357
Galveston, TX
whataday - it is the latter. There is a separate points and fees test.

SS - one year.
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#1876612 - 12/06/13 01:32 PM Re: HELOC rate cap ibcbanker
Still Smiling Offline
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Joined: Nov 2007
Posts: 767
Randy...thanks for your help.
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#1878538 - 12/13/13 05:38 PM Re: HELOC rate cap ibcbanker
pacar Offline
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Joined: Jul 2007
Posts: 320
Our HELOC's have a draw period of 3 years and a repayment period of 5 years after that. We have both fixed and variable rate programs. The variable rate is tied to an index with a cap, and has no introductory period.

For the variable rate product, I beleive I need to take the current index value plus the cap, and then compare that to a 1-year transaction for the APOR.

For the fixed rate product, I'm confused regarding the term to use. The Compliance guide states to use a product that matches the HELOC maturity. So am I looking at 8 years? I think so, but just need a nudge if I'm going in the wrong direction.

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