I'm stumped.

We want to convert a HELOC from an open-end to closed-end transaction. I've read many times here that in order to do so you must refinance, not modify, but I'm not finding a reference to this idea in Reg Z.

I found this commentary to 1026.17(b)(2), but it doesn't specifically state that the note must be satisfied and replaced with a new note. Sorry, I'm dense. Help!!

2. Converting open-end to closed-end credit. Except for home equity plans subject to §1026.40 in which the agreement provides for a repayment phase, if an open-end credit account is converted to a closed-end transaction under a written agreement with the consumer, the creditor must provide a set of closed-end credit disclosures before consummation of the closed-end transaction. (See the commentary to §1026.19(b) for the timing rules for additional disclosures required upon the conversion to a variable-rate transaction secured by a consumer's principal dwelling with a term greater than one year.) If consummation of the closed-end transaction occurs at the same time as the consumer enters into the open-end agreement, the closed-end credit disclosures may be given at the time of conversion. If disclosures are delayed until conversion and the closed-end transaction has a variable-rate feature, disclosures should be based on the rate in effect at the time of conversion. (See the commentary to §1026.5 regarding conversion of closed-end to open-end credit.)

I don't think the issue here is whether you MUST do a new note; the issue is that going from open-end to closed-end credit is a "refinance" for Reg. Z purposes requiring all new Reg. Z disclosures. Whether you can accomplish the conversion of the HELOC via a modification to the original note is more of a legal question IMO. Does that help?

Thank you, raitchjay. I'm being asked for a citation that proves that converting from open-end to closed-end is indeed a refinance. I'm looking at the definition of a refinance in 1026.20 and I'm not seeing it.

(a) Refinancings. A refinancing occurs when an existing obligation that was subject to this subpart is satisfied and replaced by a new obligation undertaken by the same consumer. A refinancing is a new transaction requiring new disclosures to the consumer. The new finance charge shall include any unearned portion of the old finance charge that is not credited to the existing obligation. The following shall not be treated as a refinancing:

(1) A renewal of a single payment obligation with no change in the original terms.

(2) A reduction in the annual percentage rate with a corresponding change in the payment schedule.

(3) An agreement involving a court proceeding.

(4) A change in the payment schedule or a change in collateral requirements as a result of the consumer's default or delinquency, unless the rate is increased, or the new amount financed exceeds the unpaid balance plus earned finance charge and premiums for continuation of insurance of the types described in §1026.4(d).

(5) The renewal of optional insurance purchased by the consumer and added to an existing transaction, if disclosures relating to the initial purchase were provided as required by this subpart.

What am I missing?

"if an open-end credit account is converted to a closed-end transaction under a written agreement with the consumer, the creditor must provide a set of closed-end credit disclosures before consummation of the closed-end transaction."

"A refinancing is a new transaction requiring new disclosures to the consumer."

Just my quick response, Richard or one of the other Reg. Z gurus can chime in, but i think that covers it....the conversion from open-end to closed-end credit requires new disclosures; the requirement for new disclosures means under Reg. Z that it is a refinance.

1026.20 is found in Subpart C of the regulation and only applies to loans previous subject to Subpart C.

Okay, feel free to laugh, but my inexperience is showing as I'm thinking out loud here:

The commentary says "if an open-end credit account is converted to a closed-end transaction under a written agreement with the consumer." Is it possible to create a modification agreement, which is a written agreement with the consumer, to convert to closed-end, give the consumer all of the required closed-end disclosures, but not have to do a new refinance transaction?

How you legally accomplish the conversion of the account from an open-end credit to the closed-end credit is an issue totally between you and your legal counsel.

We want to convert a HELOC from an open-end to closed-end transaction. I've read many times here that in order to do so you must refinance, not modify, but I'm not finding a reference to this idea in Reg Z.

Commentary 1026.40(5)(iii).

Okay, here’s a laugh. Where do I find these “commentaries” that are referred to quite often in the threads? I would like to read the Commentary 1026.40(5)(iii) that Dan refers to but am unable to locate.

Go to the top of this page and click on the orange table entitled "Read a Reg". Click on the applicable regulation and then the subsection. At the end of each section, BOL has also posted the commentary or gives a link to it.

http://www.bankersonline.com/regs/12-1026/12-1026-040.html

Scroll down the page until you see a change in the background color and it will say "Official Interpretations of this section."

Thank you so much!