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#2269044 - 04/13/22 06:16 PM Minimum Balance Requirement on a HELOC
TaraTLR Offline
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Can a Bank stipulate in a loan agreement that the customer must maintain a specified balance for a certain period of time in a HELOC loan agreement? I am not able to find anything in Reg. Z that says you cant. Thoughts?

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#2269050 - 04/13/22 06:30 PM Re: Minimum Balance Requirement on a HELOC TaraTLR
Dan Persfull Offline
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If there is regulation it will be in State Law -- I have heard of imposing a minimum advance but I have not heard of imposing a minimum balance. IMO that would drive the borrower to a competitor.
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#2269056 - 04/13/22 06:45 PM Re: Minimum Balance Requirement on a HELOC TaraTLR
TaraTLR Offline
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The borrower has requested a "fee free" loan and has agreed to maintain a minimum loan balance for 1 year if we cover all closing cost's etc. I am just wondering if we can legally put that into the customer loan agreement.

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#2269058 - 04/13/22 06:51 PM Re: Minimum Balance Requirement on a HELOC TaraTLR
Dan Persfull Offline
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I am just wondering if we can legally put that into the customer loan agreement.

That is a question for the bank's attorney based on what is allowed under state law.
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#2269062 - 04/13/22 07:06 PM Re: Minimum Balance Requirement on a HELOC TaraTLR
Andy_Z Offline
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Let's think this thru. To avoid fees I promise to keep a HELOC balance of $25K for a year. I draw $25K and use the funds. The bank has done the math and computed the interest income will replace the fees that won't be charged.

In 4 months time I pay that balance down because I no longer need all or a part of the funds, will you declare a default? Will you accelerate the loan and demand it in full? No skin of my nose unless there is a prepayment penalty that is effective even if the bank demands payment.

I think getting counsel to create some valid consumer agreement imposing a fee so the bank can recoup the expected income and avoid all the traps could be expensive and further deteriorate the income from this one loan. There are reasons loan fees are collected up front.
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#2269063 - 04/13/22 07:11 PM Re: Minimum Balance Requirement on a HELOC TaraTLR
Andy_Z Offline
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I'd throw in potential UDAAP as the examiners love noting the greedy bankers who have to collect fees from consumers. It seems an argument would be made that that consumer didn't borrow enough so the bank called the loan due and added fees because of it's actions.
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#2269067 - 04/13/22 07:41 PM Re: Minimum Balance Requirement on a HELOC TaraTLR
TaraTLR Offline
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The only repercussion would be that the customer would need to pay the closing fees that were covered by the bank. That would need to be stipulated in the loan agreement correct?

We don't have a prepayment penalty only a closing penalty. Our customers can generally pay down the HELOC to a $0 balance anytime they want, but if they close the HELOC within a certain amount of time then there is a early closure fee.

We wouldnt call the loan due or put it into default. From what I was told we would work with the customer to keep up their end of the agreement or pay the closing costs covered at loan inception.

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#2269077 - 04/13/22 08:16 PM Re: Minimum Balance Requirement on a HELOC TaraTLR
Andy_Z Offline
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"From what I was told we would work with the customer to keep up their end of the agreement or pay the closing costs covered at loan inception."

Counsel would need to create a Note that basically says, "if within the first year borrower has not paid $X in interest, borrower will make a fee payment of $Y to pay the difference between waived closing fees and the interest actually paid."

I'm confident counsel can create something, but how defendable it would be in court and how it evades usury and contract disclosure and TILA disclosure problems I couldn't say. Again, unless you see widespread adoption of such a program it seems cost prohibitive to me.

I think it may be easier to charge the fees up front and make a refund after a year based on income analysis.
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AndyZ CRCM
My opinions are not necessarily my employers.
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#2269169 - 04/15/22 03:10 PM Re: Minimum Balance Requirement on a HELOC TaraTLR
fmissle Offline
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Pac NW
Originally Posted by TaraTLR
The borrower has requested a "fee free" loan and has agreed to maintain a minimum loan balance for 1 year if we cover all closing cost's etc. I am just wondering if we can legally put that into the customer loan agreement.

Also, it sounds like this is a singular customer, not a whole HELOC product. You'll need to make sure your HELOC disclosures for this new product accurately include any specific details that are required.

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#2269176 - 04/15/22 03:41 PM Re: Minimum Balance Requirement on a HELOC TaraTLR
rlcarey Online
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How is it a "fee free" loan if I have to maintain a specific loan balance for at least one year. Sounds like a UDAAP in the making.
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#2269179 - 04/15/22 03:51 PM Re: Minimum Balance Requirement on a HELOC TaraTLR
Rocky P Online
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Florida
Great point Randy.
One option could be a side agreement that if the customer maintains an average balance of $__________ and does not go past due during the year, the bank will refund the closing charges.

I would use average, rather than minimum, because that would force the customer to take a draw at closing.
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