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#2162618 - 01/31/18 07:39 PM HELOC Renewal Before Maturity-ROR?
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In reviewing multiple posts about HELOCs and Right of Rescission there seems to be differing statements about whether ROR applies when a HELOC is renewed before maturity by way of a true renewal agreement.

1026.15 - Right of Rescission
Applies:
• In a credit plan in which a security interest is or will be retained or acquired in a consumer's principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind:
o each credit extension made under the plan;
 unless made in accordance with a previously established credit limit for the plan
o the plan when the plan is opened;
o a security interest when added or increased to secure an existing plan; and
o the increase when a credit limit on the plan is increased.

Exempt transactions:
• Residential mortgage transaction. Is a rare scenario; but could be if plan was for the downpayment for the purchase of a dwelling. Then only the portion for the downpayment would be exempt from the rescission right.

1026.40 - Home Equity Lines of Credit Disclosures
Applies:
• All open end credit plans secured by the consumer’s dwelling and is not limited to plans secured by the consumer’s principal dwelling and is for consumer purposes.
• Changes to home equity plans entered into on or after November 7, 1989
o The change in terms rules at 1026.9(c) applies if, by written agreement under 1026.40(f)(3)(iii) (may make a specified change if the consumer specifically agrees to it in writing at that time) a creditor changes the terms of a home equity plan – entered into on or after November 7, 1989—at or before its scheduled expiration, for example, by renewing a plan on different terms.
o A new plan results, however, if the plan is renewed (with or without changes to the terms) after the scheduled expiration. The new plan is subject to all open-end credit rules, including §§1026.6, 1026.15 (rescission), and 1026.40.



So does ROR apply even if it is a true renewal (not refinancing) and there is no new money? Or only when being renewed (we can renew after maturity in this state) after the maturity of the existing plan?
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#2162627 - 01/31/18 07:49 PM Re: HELOC Renewal Before Maturity-ROR? Likes to Comply
David Dickinson Offline
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No new money is not a factor for RofR on open-end loans (only closed-end loans).

If you are saying you are extending the original loan (not refinancing), then it's a modification that doesn't trigger RofR.
If you are calling it a renewal, but there's a new contract that satisfies and replaces the original agreement, it is a refinance and the RofR applies.
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#2162628 - 01/31/18 07:52 PM Re: HELOC Renewal Before Maturity-ROR? Likes to Comply
rlcarey Offline
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Also, anything you do post maturity on a HELOC is a new plan that requires new disclosures and a new RofR.
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#2162637 - 01/31/18 08:12 PM Re: HELOC Renewal Before Maturity-ROR? Likes to Comply
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Thanks!

The agreement has very specific language that it is not a novation, does not replace the previous agreement, but only modifies the agreement as specified therein. So if accomplished before maturity, then no ROR.

It appears that 1026.40 indicates that if it is after maturity, it is a new plan (regardless of how the legal documents are executed) and is subject to ROR.
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#2162664 - 01/31/18 09:38 PM Re: HELOC Renewal Before Maturity-ROR? Likes to Comply
rlcarey Offline
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Originally Posted By Likes to Comply
It appears that 1026.40 indicates that if it is after maturity, it is a new plan (regardless of how the legal documents are executed) and is subject to ROR.


That is correct.
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#2215539 - 06/12/19 03:46 PM Re: HELOC Renewal Before Maturity-ROR? David Dickinson
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"but there's a new contract that satisfies and replaces the original agreement, it is a refinance and the RofR applies"

I'm running in circles it seems... please help clarify - HELOC matured 5-15-19, new HELOC Agreement & Disclosure (note) generated 5-15-19 (at maturity) and the only change is the new maturity date being in 10 years. Same note number, same credit limit, same index and margin, etc. We did not do a change in terms but rather a new note on the maturity date. Is this a new plan requiring all new disclosures including ROR?
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#2215552 - 06/12/19 04:12 PM Re: HELOC Renewal Before Maturity-ROR? Likes to Comply
rlcarey Offline
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Yes.
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#2215574 - 06/12/19 05:50 PM Re: HELOC Renewal Before Maturity-ROR? rlcarey
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Thank you. Can you clarify what triggered this being a new plan since we completed it on the maturity date? Is it because we generated a new note instead of doing a change in terms? And, if ROR applies, they already had a principal balance owed so we would limit any further draws until the 3 days expired or how does that work? We do not require the line to be paid down to zero prior to the new term.
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#2215582 - 06/12/19 06:04 PM Re: HELOC Renewal Before Maturity-ROR? Likes to Comply
rlcarey Offline
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2. Changes to home equity plans entered into on or after November 7, 1989. Section 1026.9(c) applies if, by written agreement under §1026.40(f)(3)(iii), a creditor changes the terms of a home equity plan—entered into on or after November 7, 1989—at or before its scheduled expiration, for example, by renewing a plan on different terms. A new plan results, however, if the plan is renewed (with or without changes to the terms) after the scheduled expiration. The new plan is subject to all open-end credit rules, including §§1026.6, 1026.15, and 1026.40.

You are not changing the terms, you are replacing the existing HELOC with a whole new note and thus you have a new plan, regardless of whether any terms have changed. There is no refinance exemption from the right of rescission in Subpart B like there is in Subpart C for closed-end loans.
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#2242820 - 09/21/20 06:05 PM Re: HELOC Renewal Before Maturity-ROR? David Dickinson
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Is there even such thing as a "refinancing" for Open-End credit under Reg. Z? It does not seem to be mentioned at all in TILA in relation to Open-End credit. Isn't a "refinance" really closing out an existing open-end plan and opening a new one when it comes to lines?

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#2242823 - 09/21/20 06:17 PM Re: HELOC Renewal Before Maturity-ROR? Likes to Comply
rlcarey Offline
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Unless you are modifying an existing plan, refinancing does not come into play on open-end credit in Regulation Z.
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#2242826 - 09/21/20 06:19 PM Re: HELOC Renewal Before Maturity-ROR? rlcarey
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Even if you are "modifying," if you really "refinance" the plan, isn't that in actuality agreeing to terminate the old plan and open a new one?

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#2242833 - 09/21/20 06:53 PM Re: HELOC Renewal Before Maturity-ROR? Likes to Comply
rlcarey Offline
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I think we are getting stuck on the semantics of "refinance". There is no exemption under the right of rescission for a refinance by the same creditor. However, you can modify an existing plan and only be subject to the right of rescission using Model Form G-7 which addresses an increase of the security interest if you are raising the credit limit and/or by complying with 1026.9 if other disclosable features are changing.

But if you replace the existing loan with an entirely new agreement, you have to start from square one..
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#2242836 - 09/21/20 07:09 PM Re: HELOC Renewal Before Maturity-ROR? rlcarey
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Yes, I agree. That is the point I believe I am trying to make is that we shouldn't really use the word "refinance," in regards to Open-End credit, like we do for Closed-End. If you are really "satisfying and replacing" an existing plan, then what seems to actually take place under Reg. Z is terminating an existing plan and opening a new one. A "modification" is something different and should not be used in correlation with "refinance."
Last edited by Compliance NABW; 09/21/20 07:09 PM.
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