If after maturity you are modifying the loan into another open-end credit plane see 1026.40(2).

Anytime you are modifying an open-end credit to closed-end credit you have to provide the closed-end credit disclosures. Regardless whether you use a new note or modification agreement that new agreement satisfies and replaces the open-end credit agreement (a refinancing). If it doesn't then you best be providing periodic statements, billing right notices, and following any other applicable open-end credit requirement.

As always Dan, you are da MAN!

Ok - now I have another question. If, after maturity, you use a Modification agreement that replaces and satisfies the HELOC note,
what are you modifying? Aren't the terms of the HELOC dead?

Do you have to give closed end disclosures in conjuction with your modification agreement (e.g. TILA, RESPA, etc.)?

If that question is yes, you would better off doing a closed end note, but in either case you are subject to ATR right?

Yes. At that point, closed-end credit would be covered by .43 and ATR.

If you are using a modification agreement to convert the loan to closed end credit you best have a very competent attorney draft the document and I would go so far as to require the attorney to give me an indemnification agreement in case the modification agreement didn't stand up in court.

Right Dan. So, and I realize this is a legal question, but if you do a new closed end note, won't you lose lien position? How about if you modify the mortgage (not the note)? I'm just wondering what others are doing and fully realize much will depend on state law. Thanks!

Modifying the mortgage and not the note buys you and the borrower nothing if the goal is to morph the obligation into a closed-end credit. The mortgage contains language providing security for the loan obligation; the note contains the language on how, when, etc., the loan is to be repaid.

So if there is an intervening lien the only option is to try to get a subordination agreement? I'm starting to think just foreclosing on these HELOC loans might be easier. Yikes!

Paying close attention to maturity dates and subsequent liens is key to preserving lien position.

True, but these customers do not have the ability to pay. So we can give them a new HELOC (which we don't want to do) or we can foreclose. Those seem like the only two options, unfortunately. (If there is no intervening lien, we can do a closed end loan with a balloon, if it is greater than 61 months, right?)

If their lack of ability to repay is the result of a change in financial circumstance you can restrict advances with proper notice and keep it a HELOC. Then you can extend the HELOC prior to maturity and increase the minimum payment to where they are paying principal and interest. If their financial condition changes though you may have to reinstate the ability to take draws.

Thanks terpsfan. I will keep that in mind for non-matured loans, but these are matured loans. One last clarification (I think). You couldn't close a closed end note that did not meet ATR because that would be a violation of 1026.43 (I think that is right cite). In other words, a FI can't just say, "Forget it. We don't want to foreclose, the customer can't comply with ATR so we will just give them a closed end loan and hope for the best." If you did that you would be in violation with the general requirement to prove the borrower has the ability to repay, I think. Right?

How about treating these matured loans as workouts, which they are, and having an attorney draft a temporary forebearance agreement that is good for 6 to 12 months and re-evaluated at that time? That may then go to another forebearance agreement as long as they keep making the scheduled payments (under the agreement). You really should not be committing to longer term notes on matured loans that have no ability to repay.

Well, therein lies the problem, I think. I thought in reading this thread and the rules, you couldn't have a closed end workout agreement on a matured HELOC, without complying with all the closed end disclosures and ATR. Did I miss something?

I would discuss with counsel if a 6 month forebearance agreement comes under the temporary loan exemption for ATR.

I personally believe it would.

We have a situation where a borrower is coming back to us after being discharged in Bankruptcy court. She wants to keep the home and has agreed to a settlement agreement in which a new note will be created. Are disclosures required and ATR applicable in a situation like this?

following...

We currently have procedures in place that follow the interagency guidelines for HELOCs nearing their end of draw periods. Loan operations is asking what the options are in situations where the borrower has a balance and they cannot be contacted or won't cooperate to a workout plan. If the HELOC comes to maturity, what are others doing in this scenario? Our advice to them was to turn it over to collections and call the note... I'm not sure there are many other options at that point. Thoughts/comments are appreciated.

There will be no note to call. After maturity, you start the foreclosure process.

thanks for the response Randy. That was what I meant when I said call the note... but was poor wording

Trying to revive this a little. We have a new loan "workout" where the co-borrower lost her job. We combined a HELOC and a small consumer loan into a closed-end 2nd mortgage. We did all of the applicable disclosures but I don't think ATR was fully documented. If I am reading this thread correctly, even though this is a workout, the fact that we switched from open to closed end makes it applicable to all parts of Reg Z including ATR or am I wrong?

Thanks in advance!