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#35121 - 09/30/02 04:17 PM Home equity line as refinance
Bartman Offline
Diamond Poster
Bartman
Joined: Oct 2000
Posts: 1,191
Springfield
We have a lender asking if they can do a $300,000 first mortgage refinance and a $90,000 home equity line - the first mortgage, plus $60,000 of the equity line would be used to satisfy the $360,000 present mortgage.

Can we use proceeds from an equity line as part of the original loan payoff?

The same concept (I assume) would apply if the lender did an 80% LTV purchase-money first mortgage, and a 90% LTV home equity line to cover the balance of the downpayment & avoid PMI on the first - I've been asked this before, too, and fell back on our policy of not making these loans. However, I'm curious as to whether it's even possible.

Thanks in advance -
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Opinions are Bartman's, not those of my employer. "A noble spirit embiggens the smallest man."

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#35122 - 09/30/02 05:27 PM Re: Home equity line as refinance
NMB Offline
Gold Star
Joined: Jun 2002
Posts: 255
Southeast Michigan
We use HELOCs for purchase money mortgages, down payment amounts, and refinances. If there are any state issues involved I'm not aware of them. Check your note. I found that the one we were using, prepared by a local attorney, had a statement that the customer agrees that the proceeds will not be used to acquire or refi a home. I removed that paragraph. (The attorney said he added that statement so that banks would not have to worry about HMDA and RESPA. Upon discussion, he confirmed that the RESPA disclosures are not needed for HELOCs as long as the full HELOC program disclosure is given. And we document the purpose anyway, for HMDA reporting. )
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My comments and opinions are my own, not my employer's.

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#35123 - 10/01/02 01:08 PM Re: Home equity line as refinance
Bartman Offline
Diamond Poster
Bartman
Joined: Oct 2000
Posts: 1,191
Springfield
Thanks - that's pretty much what I found in my additional research. Mortgage operations is also recommending that we watch the title insurance coverage on the equity piece.
_________________________
Opinions are Bartman's, not those of my employer. "A noble spirit embiggens the smallest man."

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#35124 - 10/10/02 02:59 AM Re: Home equity line as refinance
Howard Lax Offline
Gold Star
Howard Lax
Joined: Jan 2002
Posts: 478
Bloomfield Hills, Michigan
The "acquire or refi a home" clause may have been put in the agreement to make sure that it is truly open end credit. If the parties do not contemplate up and down borrowing, then the borrower can argue that the loan is a closed end facility, regardless of what the documents allow, and the lender gave the wrong disclosures.
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Howard A. Lax Lipson, Neilson, et. al. Bloomfield Hills, MI hlax@lipsonneilson.com

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