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#2245284 - 11/09/20 04:49 PM Request to close HELOC - AAN to co-borrower?
Compli(cated) Offline
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Joined: Mar 2011
Posts: 185
Wisconsin
Need some input on this situation - have been going in circles: we have a borrower and co-borrower on an open HELOC in the draw period. They are getting divorced and one of them has requested to pull the HELOC limit. Our note has the provision stating that we can do this based on a request by either one of them, so that part works.

But here's the question: does the non-requesting borrower need to get an AAN in this situation? Technically, that person did not request to pull the limit and would not be signing for that, so we are taking an adverse action against them. Or does the "based on borrower's request" part cover a request by one of the borrowers and we treat that as requested by both as far as AAN goes?
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#2245291 - 11/09/20 05:28 PM Re: Request to close HELOC - AAN to co-borrower? Compli(cated)
rlcarey Online
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rlcarey
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Galveston, TX
A borrower request that is supported by the legal agreement is not an adverse action taken by the lender.
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#2245308 - 11/09/20 07:11 PM Re: Request to close HELOC - AAN to co-borrower? Compli(cated)
Compli(cated) Offline
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Wisconsin
Thanks, Randy.

Do you happen to have a citation that makes this clear? I am looking for something along the lines of "borrower request" means a request by any one of the borrowers in this situation since there are reg provisions requiring separate Adverse Action Notices for each under different circumstances. I am not able to find anything that ties it together this way.
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#2245309 - 11/09/20 07:25 PM Re: Request to close HELOC - AAN to co-borrower? Compli(cated)
Inherent_Risk Offline
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1002.2(c)(2) The term [Adverse Action] does not include:

(i) A change in the terms of an account expressly agreed to by an applicant;

Quote
since there are reg provisions requiring separate Adverse Action Notices for each under different circumstances.

Nothing in Reg B requires this, and I'm guessing you aren't triggering anything under FCRA.

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#2245355 - 11/10/20 04:06 PM Re: Request to close HELOC - AAN to co-borrower? Compli(cated)
John Burnett Offline
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If you agree that no adverse action notice is required for the co-borrower in these circumstances, you may still want to alert them to the fact that line access has been shut down as a face-saving courtesy to them. Imagine that you'd just had HELOC access shut off without notice and issued a check drawn on the HELOC.
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#2245372 - 11/10/20 05:33 PM Re: Request to close HELOC - AAN to co-borrower? Compli(cated)
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
Reg. B may not require any notice under this situation but Reg. Z does.

1026.9
(c) Change in terms. (1) Rules affecting home-equity plans. (i) Written notice required. For home-equity plans subject to the requirements of §1026.40, whenever any term required to be disclosed under §1026.6(a) is changed or the required minimum periodic payment is increased, the creditor shall mail or deliver written notice of the change to each consumer who may be affected. The notice shall be mailed or delivered at least 15 days prior to the effective date of the change. The 15-day timing requirement does not apply if the change has been agreed to by the consumer; the notice shall be given, however, before the effective date of the change.

(iii) Notice to restrict credit. For home-equity plans subject to the requirements of §1026.40, if the creditor prohibits additional extensions of credit or reduces the credit limit pursuant to §1026.40(f)(3)(i) or (f)(3)(vi), the creditor shall mail or deliver written notice of the action to each consumer who will be affected. The notice must be provided not later than three business days after the action is taken and shall contain specific reasons for the action. If the creditor requires the consumer to request reinstatement of credit privileges, the notice also shall state that fact.

1026.40
4. Reinstatement of credit privileges. Creditors are responsible for ensuring that credit privileges are restored as soon as reasonably possible after the condition that permitted the creditor's action ceases to exist. One way a creditor can meet this responsibility is to monitor the line on an ongoing basis to determine when the condition ceases to exist. The creditor must investigate the condition frequently enough to assure itself that the condition permitting the freeze continues to exist. The frequency with which the creditor must investigate to determine whether a condition continues to exist depends upon the specific condition permitting the freeze. As an alternative to such monitoring, the creditor may shift the duty to the consumer to request reinstatement of credit privileges by providing a notice in accordance with §1026.9(c)(1)(iii). A creditor may require a reinstatement request to be in writing if it notifies the consumer of this requirement on the notice provided under §1026.9(c)(1)(iii). Once the consumer requests reinstatement, the creditor must promptly investigate to determine whether the condition allowing the freeze continues to exist. Under this alternative, the creditor has a duty to investigate only upon the consumer's request.


5. Suspension of credit privileges following request by consumer. A creditor may honor a specific request by a consumer to suspend credit privileges. If the consumer later requests that the creditor reinstate credit privileges, the creditor must do so provided no other circumstance justifying a suspension exists at that time. If two or more consumers are obligated under a plan and each has the ability to take advances, the agreement may permit any of the consumers to direct the creditor not to make further advances. A creditor may require that all persons obligated under a plan request reinstatement.

The following is a sample of what we use:

This is to inform you that effective immediately all credit advance privileges for your Home Equity Line of Credit have been suspended.

This suspension is based on the receipt of a request from Sandy Co-borrower on December 19, 2013 to terminate this account.

For your reference this suspension request is being granted under the provisions of the Home Equity Line of Credit Consumer Open-End Agreement executed by you on July 11, 2003. More specifically Section 15.

You are also so informed that under Section 15 and Section 20 of the agreement you each remain contractually liable for the repayment of the account.

In order to reinstate your credit privileges under the original terms of the agreement you must send us a written request to that effect. Due to the nature of this suspension both Joe Borrower and Sandy Co-borrower must agree in writing to reinstate the account. Your credit privileges will only be reinstated if we determine that the conditions which caused us to prohibit additional extensions of credit no longer exist and that none of the other provisions for suspension under Section 12 exists. If appraisal or credit report fees are incurred in making the determination, we may (if allowed by applicable law) charge you such fees.
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#2245375 - 11/10/20 05:40 PM Re: Request to close HELOC - AAN to co-borrower? Compli(cated)
rlcarey Online
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Galveston, TX
Dan - While I think that is a great letter- I am not sure that 1026.40 actually requires it on a customer requested suspension.
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#2245465 - 11/12/20 09:23 PM Re: Request to close HELOC - AAN to co-borrower? Compli(cated)
Compli(cated) Offline
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Wisconsin
Ha! and now we are back full-circle!

I can see that under 1002.2(c)(2) the Note would constitute something that both applicants agreed to and then this would not be an adverse action against non-requesting borrower (i.e. we view the note as their agreement to this change, not the request to close the HELOC).

But based on those provisions of Reg Z, I could not find anything definitive saying that we do not need to provide a notice in this situation - circumstances covered under 1026.40 are not specifically exempt from requirements of 1026.9 as far as I can see. Are you seeing it differently, Randy?
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#2245469 - 11/12/20 09:47 PM Re: Request to close HELOC - AAN to co-borrower? Compli(cated)
rlcarey Online
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Galveston, TX
1002.9 does not come into play in this situation. The borrower is exercising their right under the loan agreement. The bank is not taking adverse action against the borrower. If the bank (not the borrower) was suspending or terminating the line, then yes, 1002.9 would come into play.
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#2245470 - 11/12/20 09:53 PM Re: Request to close HELOC - AAN to co-borrower? Compli(cated)
Compli(cated) Offline
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Joined: Mar 2011
Posts: 185
Wisconsin
I am with you on 1002.9, Randy. But your previous comment makes sound like 1026.40 may also not apply - any additional insights there?

I am reading Reg Z like Dan is and I don't see a way out of the notice under 1026.40 (thanks for the response and for the sample, Dan!)
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#2245471 - 11/12/20 10:02 PM Re: Request to close HELOC - AAN to co-borrower? Compli(cated)
rlcarey Online
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Galveston, TX
(iii) Notice to restrict credit. For home-equity plans subject to the requirements of §1026.40, if the creditor prohibits additional extensions of credit or reduces the credit limit pursuant to §1026.40(f)(3)(i) or (f)(3)(vi), the creditor shall mail or deliver written notice of the action to each consumer who will be affected.

The creditor does not "prohibits additional extensions of credit or reduces the credit limit pursuant to §1026.40(f)(3)(i) or (f)(3)(vi)". This is a borrower option under the loan agreement.
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#2249992 - 03/02/21 10:48 PM Re: Request to close HELOC - AAN to co-borrower? Compli(cated)
Tanders922 Offline
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Some what related question and I think I have seen this question before, but could not find it.. a borrower has an open end LOC and wants an advance or draw and for some reason we deny the request or don't advance the full amount requested, is an AAN required? For example, the line is $100k, balance is $95K and the borrower asks for a $10K draw, due to the balance he is only eligible for $5K. Is an AAN required? What if he had a $100K LOC and a balance of $100K and asked for an additional $10K, due to being fully extended on the LOC, the request was denied, AAN needed? No additional underwriting or credit was extended.

Thanks!

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#2249994 - 03/02/21 11:11 PM Re: Request to close HELOC - AAN to co-borrower? Compli(cated)
rlcarey Online
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rlcarey
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Galveston, TX
No - there was no adverse action. Not letting someone get a draw that exceeds their credit limit is not denying them credit.

(2) The term does not include:

(iii) A refusal or failure to authorize an account transaction at point of sale or loan, except when the refusal is a termination or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor's accounts, or when the refusal is a denial of an application for an increase in the amount of credit available under the account;
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#2250007 - 03/03/21 02:29 PM Re: Request to close HELOC - AAN to co-borrower? Compli(cated)
Tanders922 Offline
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Thank you!

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#2250026 - 03/03/21 04:29 PM Re: Request to close HELOC - AAN to co-borrower? Compli(cated)
John Burnett Offline
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John Burnett
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Cape Cod
Denying the draw request that would create an overline balance is not AA, but denying a request to increase the line to accommodate that draw would be AA.
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