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#1978888 - 11/25/14 02:34 PM Repay HELOC during draw period
joeball Offline
100 Club
joeball
Joined: May 2004
Posts: 170
Bluegrass State
Our HELOC's are set up as a 10 year draw period only. At maturity we refinance to a new HELOC or an amortizing loan.

This question has been posed to me and I wanted to see if anyone else is doing this or if it is even possible.

Example: Customer has a $20,000.00 HELOC with $10,000.00 drawn. We are wanting to, at the customers request, set aside the $10,000.00 (or whatever amount the customer wants)and put on payments until paid down.

Again, is this possible? Would any additional disclosures be required?

Thanks,
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Lending Compliance
#1978893 - 11/25/14 02:44 PM Re: Repay HELOC during draw period joeball
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,018
Bloomington, IN
Example: Customer has a $20,000.00 HELOC with $10,000.00 drawn. We are wanting to, at the customers request, set aside the $10,000.00 (or whatever amount the customer wants)and put on payments until paid down.

Maybe I haven't had enough caffiene yet this morning but I'm not understanding the above statement. Could you please elaborate?
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The opinions expressed are mine and they are not to be taken as legal advice.

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#1978901 - 11/25/14 02:56 PM Re: Repay HELOC during draw period joeball
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 80,341
Galveston, TX
I'm with Dan??

Are you talking about fixing the payment on a portion of the line and as that portion pays down, the amount paid goes back into the available credit line.

Or, are you talking about just making them a separate $10,000 closed end mortgage loan.
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#1978907 - 11/25/14 03:13 PM Re: Repay HELOC during draw period rlcarey
joeball Offline
100 Club
joeball
Joined: May 2004
Posts: 170
Bluegrass State
Sorry the explanation didn't make sense. Randy is correct. We are wanting to fix the payment on that portion of the HELOC and as it is paid down, the amount would be available back into the line.

Thanks for reading my mind Randy.
_________________________
I'm no supergenius, or are I? Homer Simpson.


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#1978914 - 11/25/14 03:19 PM Re: Repay HELOC during draw period joeball
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 47,018
Bloomington, IN
You would have to have the capability to carve that portion out separately on your periodic statments. From the Commentary to 1026.40:

5. Payment terms—applicability of closed-end provisions and substantive rules. All payment terms that are provided for in the initial agreement are subject to the requirements of subpart B and not subpart C of the regulation. Payment terms that are subsequently added to the agreement may be subject to subpart B or to subpart C, depending on the circumstances. The following examples apply these general rules to different situations:

i. If the initial agreement provides for a repayment phase or for other payment terms such as options permitting conversion of part or all of the balance to a fixed rate during the draw period, these terms must be disclosed pursuant to §§1026.6 and 1026.40, and not under subpart C. Furthermore, the creditor must continue to provide periodic statements under §1026.7 and comply with other provisions of subpart B (such as the substantive requirements of §1026.40(f)) throughout the plan, including the repayment phase.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#1978918 - 11/25/14 03:19 PM Re: Repay HELOC during draw period joeball
rlcarey Offline
10K Club
rlcarey
Joined: Jul 2001
Posts: 80,341
Galveston, TX
That is a pretty common product in some areas of the country. If your original agreement does not provide for it, you would have to modify the current contract through written agreement. You also need to make sure you have the capability to properly include these features on the monthly periodic statements.

The commentary in Reg. Z addresses these features:

Paragraph 40(d)(5)(ii)

2. Fixed rate and term payment options during draw period.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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