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#2122740 - 03/20/17 07:49 PM Introductory Rate Period Home Eqty Lines of Credit
spidergirl Offline
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Good afternoon, our question is around reporting number of months for an introductory rate for home equity lines of credit with adjustable rates. Our example is a home equity line of credit with a 15 month promo rate good only on the first draw if that draw is taken at closing. Any subsequent draw on the line could be a different rate. So if the customer closes a line and at closing does NOT take a draw they do not get the promo rate. But, if the customer decides to take a draw 10 days after closing they would get the rate at which the equity line is tied to, not the promo rate available at the time of the closing.

So if a customer takes the draw at the closing and it is the promo rate for 15 months, do we report the number of months until the first date the interest rate may changes as 15 or is the number of month reported as 1 month because the rate could change on any subsequent draw monthly or the first draw if it wasn’t taken at closing? Thank you for your input in advance

Paragraph 4(a)(26).
1. Types of introductory rates. Section 1003.4(a)(26) requires a financial institution to report the number of months, or proposed number of months in the case of an application, from closing or account opening until the first date the interest rate may change. For example, assume an open-end line of credit contains an introductory or “teaser” interest rate for two months after the date of account opening, after which the interest rate may adjust. In this example, the financial institution complies with § 1003.4(a)(26) by reporting the number of months as “2.”

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#2122853 - 03/21/17 04:27 PM Re: Introductory Rate Period Home Eqty Lines of Credit spidergirl
David Dickinson Offline
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Honestly, I don't know. I've never heard of the situation you describe and wonder how much confusion it causes borrowers. It's not my product to question, but if I were an examiners, I'd be looking at this very hard for UDAP issues.

I think this is one you'll need to write the CFPB about to get an answer.
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#2122878 - 03/21/17 05:42 PM Re: Introductory Rate Period Home Eqty Lines of Credit spidergirl
rlcarey Offline
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Galveston, TX
the number of months, or proposed number of months in the case of an application, from closing or account opening until the first date the interest rate may change

I think the answer is zero. It happens the second after closing.
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#2125257 - 04/06/17 12:58 PM Re: Introductory Rate Period Home Eqty Lines of Credit spidergirl
Carter'sMom Offline
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Joined: Aug 2015
Posts: 38
I was wondering about this as well on our loans that are tied to prime or some other published rate. They could change any day. I was tossing around zero or 1.

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#2127346 - 04/20/17 07:30 PM Re: Introductory Rate Period Home Eqty Lines of Credit spidergirl
Jade'sFire Offline
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Joined: Apr 2012
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Yaven IV
Carter'sMom, that is my question as well.

Does a HELOC tied to prime meets the definition of having an "introductory rate period" if it could change at any time?

My opinion: we don't report an intro rate period. However, I have a very experienced compliance buddy that thinks we report 1 in those instances.
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#2127349 - 04/20/17 07:40 PM Re: Introductory Rate Period Home Eqty Lines of Credit spidergirl
Kathleen O. Blanchard Offline

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There are limited excluded circumstances (like fixed rate and purchased loans). Do you have a notice period before the rate can change on your HELOCs? If the HELOC closes today and prime changes tomorrow, when will the rate adjust?

Otherwise, if a rate can change in a period less than 1 month, report 1 (1 month is the minimum to be reported.) Think commercial lines and floating rate closed end.
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