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#2221542 - 09/13/19 03:05 PM Reg. Z- Rescission
TaraTLR Offline
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Joined: May 2013
Posts: 128
If a customer uses a HELOC to purchase a home and the bank finances the origination fee and flood fee, for example, would the fees that are financed be rescindable? The HELOC is secured by the home being purchased. Reg. Z states, "only the particular advance for the downpayment, i.e. purchase, would be exempt from the rescission right".

For example, loan amount is $250,000. $248,000 is sent to the title company for the purchase and $1000 is drawn from the line to finance the origination fee and flood fee. Since the entire loan amount is not being sent to title for the purchase is the $1000 rescindable?

Your help would be greatly appreciated. Thank you.

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#2221545 - 09/13/19 03:17 PM Re: Reg. Z- Rescission TaraTLR
rlcarey Offline
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rlcarey
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Galveston, TX
The fees are part of the residential mortgage transaction and would not be rescindable. I would be really concerned that a HELOC that is fully drawn to buy a house is a misuse of a HELOC and is covering up an actual closed-end credit transaction.
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#2221549 - 09/13/19 03:57 PM Re: Reg. Z- Rescission TaraTLR
TaraTLR Offline
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Joined: May 2013
Posts: 128
Thank you for your help with this. Your opinion is very valuable.

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#2221572 - 09/13/19 05:35 PM Re: Reg. Z- Rescission TaraTLR
TaraTLR Offline
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Joined: May 2013
Posts: 128
So should we give a ROR at the beginning of the loan for future advances after the line has been paid down if the customer makes principal payments? I am looking at Reg. Z and this is where I am feeling like we don't have to give ROR.

2. Exceptions. Although the consumer generally has the right to rescind with each transaction on the account, Section 125(e) of the Act provides an exception: the creditor need not provide the right to rescind at the time of each credit extension made under an open-end credit plan secured by the consumer's principal dwelling to the extent that the credit extended is in accordance with a previously established credit limit for the plan. This limited rescission option is available whether or not the plan existed prior to the effective date of the Act.

Please let me know your thoughts. Thank you.

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#2221574 - 09/13/19 05:53 PM Re: Reg. Z- Rescission TaraTLR
RR Joker Offline
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RR Joker
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The Swamp
So should we give a ROR at the beginning of the loan for future advances after the line has been paid down if the customer makes principal payments?

Absolutely. If you don't, you will be obligated to give it on every single advance into eternity.

What you DON'T have to do is wait 3 days to advance the purchase portion, which would include the costs associated with the purchase.
Last edited by RR Joker; 09/13/19 05:55 PM.
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#2223042 - 10/04/19 02:49 PM Re: Reg. Z- Rescission RR Joker
OnTheEdge Offline
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Joined: Apr 2002
Posts: 1,677
SmallTown, USA
We are refinancing (new loan) a matured HELOC. The line is not increased, other than a few closing fees. I originally said ROR does not apply. Now I am having second thoughts.
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#2223049 - 10/04/19 03:14 PM Re: Reg. Z- Rescission TaraTLR
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
If the HELOC is with your FI and it is being refinanced into a closed-end credit and there is no cash out other than closing costs then rescission would not apply.

If it is being refinanced into a new HELOC then rescission would apply.
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#2223052 - 10/04/19 03:41 PM Re: Reg. Z- Rescission OnTheEdge
OnTheEdge Offline
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Joined: Apr 2002
Posts: 1,677
SmallTown, USA
Never mind, I found the answer from an older post that Randy had provided.

"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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#2223053 - 10/04/19 03:43 PM Re: Reg. Z- Rescission Dan Persfull
OnTheEdge Offline
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SmallTown, USA
Thanks Dan.
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