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#2254320 - 05/24/21 11:05 PM Cross Collateral - Purchase Money HELOC - ROR?
mnbanker09 Offline
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Joined: Jan 2018
Posts: 128
HELOC with the purpose to purchase new primary residence; collateral is new residence and current residence. (Current residence up for sale).
Does ROR apply to this transaction since their current residence is taken as collateral? Regulatory cite the commentary for 1026.15(a)(1)(6)?

6. Special rule for principal dwelling. Notwithstanding the general rule that consumers may have only one principal dwelling, when the consumer is acquiring or constructing a new principal dwelling, a credit plan or extension that is subject to Regulation Z and is secured by the equity in the consumer's current principal dwelling is subject to the right of rescission regardless of the purpose of that loan (for example, an advance to be used as a bridge loan). For example, if a consumer whose principal dwelling is currently A builds B, to be occupied by the consumer upon completion of construction, a loan to finance B and secured by A is subject to the right of rescission. Moreover, a loan secured by both A and B is, likewise, rescindable.

Just want to make sure I understand this correctly.

Thank you!
Last edited by mnbanker09; 05/24/21 11:16 PM.
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#2254323 - 05/25/21 11:22 AM Re: Cross Collateral - Purchase Money HELOC - ROR? mnbanker09
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
Yes - you have a bridge loan and it is rescindable.
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#2254326 - 05/25/21 11:51 AM Re: Cross Collateral - Purchase Money HELOC - ROR? rlcarey
mnbanker09 Offline
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Joined: Jan 2018
Posts: 128
Thank you.

As a follow-up on this particular scenario, the lender is proposing two loans. First loan being a HELOC (no advances expected), primary residence that is currently for sale as collateral, and after the 3-day rescission expires, the second HELOC will be in place on the new primary residence and current home taken as collateral. (First loan would be closed upon the 2nd HELOC in place). Lender indicates the first HELOC is in place to 'get rescission out of the way'. Is this appropriate??

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#2254329 - 05/25/21 12:55 PM Re: Cross Collateral - Purchase Money HELOC - ROR? mnbanker09
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
I do not under stand this sentence. "the second HELOC will be in place on the new primary residence and current home taken as collateral."

Can you maybe out line this with Home A as the current residence and Home B as the new residence.

Also, why make the first HELOC if there is not going to be any advances?
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#2254333 - 05/25/21 01:10 PM Re: Cross Collateral - Purchase Money HELOC - ROR? rlcarey
mnbanker09 Offline
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Yes of course.

Loan #1: HELOC on existing Home A. No advances. After rescission period ends, Loan #2 in place with Home B and Home A as collateral. Loan #1 will be closed.

I have no idea why Loan #1 is even put in place, since they are not advancing. The lender just says to get rescission out of the way, but rescission would still apply on Loan #2?

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#2254340 - 05/25/21 01:52 PM Re: Cross Collateral - Purchase Money HELOC - ROR? mnbanker09
Skittles Online
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Skittles
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TN
I'm not Randy - but yes it will be required since you are taking both the new home and the current residence as collateral.
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#2254342 - 05/25/21 02:01 PM Re: Cross Collateral - Purchase Money HELOC - ROR? mnbanker09
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
Every HELOC requires rescission. There is no refinancing exception for open-end credit in 1026.15 like there is in 1026.23. They are wasting everyone's time.
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