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#487474 - 01/23/06 11:10 PM HELOC early disclosure
ahou Offline
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ahou
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If the loan officer give an early HELOC variable rate disclosure that does not disclose a margin, then that makes the historical table incorrect and thus the min pmt example incorrect. Would this error then make the initial HELOC disclosure out of compliance, even though the margin is disclosed on the initial disclosure?
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Lending Compliance
#487475 - 01/24/06 12:09 AM Re: HELOC early disclosure
rlcarey Online
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rlcarey
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Galveston, TX
The early disclosure and the initial disclosure are two separate documents and stand alone from a violation standpoint.
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#487476 - 01/24/06 12:55 PM Re: HELOC early disclosure
ahou Offline
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ahou
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On the initial disclosures, you have to provide variable rate disclosures unless you gave the applicant the early discl in a form they could keep & the pmt option is the one the applicant ultimately wants. If those variable rate disclosures are incorrect (margin or discount rate not disclosed), wouldn't the init discl thus technically be not correct? I'm probably reading too much into this because I'm a perfectionist.
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#487477 - 01/24/06 01:10 PM Re: HELOC early disclosure
rlcarey Online
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rlcarey
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Galveston, TX
ahou - you are not reading too much into it. If those disclosure were not repeated in the initial disclosure you would have an issue.
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#487478 - 01/24/06 01:13 PM Re: HELOC early disclosure
ahou Offline
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ahou
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Thank you..my brain is tired.
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#487479 - 01/24/06 02:13 PM Re: HELOC early disclosure
KSalberta Offline
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KSalberta
Joined: Jan 2003
Posts: 150
GA
Quote:

If the loan officer give an early HELOC variable rate disclosure that does not disclose a margin, then that makes the historical table incorrect and thus the min pmt example incorrect. Would this error then make the initial HELOC disclosure out of compliance, even though the margin is disclosed on the initial disclosure?




Not necessarily. If you look at the samples provided in the regs, they include phrases like "Ask us for the current index value, margin and annual percentage rate." They are, however, supposed to be representative and include terms that the bank has actually been offering recently.

It is extremely difficult for anyone to give you an accurate answer to your question without knowing more about how your HELOC programs or programs work in practice.

If, for example, you have a program with three different margins (say 0, 1 and 2) for different risk ratings, and you are giving an early disclosure only showing the zero margin, I would say this is a somewhat risky practice. Depending on your market area and how many you close in each locale, you might be exposing your bank to potential claims of unfair marketing and lending. Also, don't forget the spate of predatory lending/unfair practice guidances in the past few years, as well as the possibility of state-level liabilities.

For this reason, we are recommending a best practice of disclosing the margin (or margins) actually in use at the time of application, and we have even gone to the length of putting the calculations themselves in an Acrobat document so that the lender can input the margin offered and click "Calculate". But this is not required by the regulations.

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#487480 - 01/24/06 02:28 PM Re: HELOC early disclosure
ahou Offline
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ahou
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Separate prog discl are required for differences such as margin vs no margin (presence of a margin not the actual amt) or discount vs non-discount. If an officer gives a "no margin prog disclosure", this is an exception if the customer chose or was offered a HELOC with a margin (such as Prime + 2) You have to refer to Reg Z closed-end cr ARM disclosures because there is no guidance in the open-end section.
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#487481 - 01/24/06 02:52 PM Re: HELOC early disclosure
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
The regulations, either closed-end or open-end, do not require you to disclose a margin. Margins are negotiable. None of our disclosures disclose a margin, unless you count making the statement on the HELOC disclosure that the margin used for the historical example is a margin we have recently used.

If there is a discount or premium rate then that fact does have to be disclosed. But a discount or premium rate does not affect your margin. These rates are simply rates that are set by a formula that is not the same as your fully indexed rate (index plus margin).

We have two HELOC programs - Prime and Prime Plus. I have two separate disclosures but it is not because of the Prime and Prime Plus, its because the Prime Plus account has a different floor rate and that fact constitutes a separate program.

As long as all other terms are the same you do not have to have separate plan disclosures because the margin may differ.

You never refer to closed-end credit disclosure rules for open-end credit disclosure requirements. If the disclosure rule does not exist in the open-end credit rules, then they are not required for open-end credit.
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#487482 - 01/24/06 04:35 PM Re: HELOC early disclosure
Miss Kitty Offline
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Joined: Mar 2002
Posts: 721
California
Changing the subject slightly... When giving the historicals, is there any guidelines that state when you update the historicals? e.g. at my former bank we used the last day in July, this institution uses the first day in January.

Thanks-

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#487483 - 01/24/06 04:47 PM Re: HELOC early disclosure
ahou Offline
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ahou
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[We have two HELOC programs - Prime and Prime Plus. I have two separate disclosures but it is not because of the Prime and Prime Plus, its because the Prime Plus account has a different floor rate and that fact constitutes a separate program.]

So absence or presence of a margin does not constitute a separate prg? How do I disclose how the APR is determined? "To determine the APR we may or may not add a margin to the value of the index."?
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#487484 - 01/24/06 05:04 PM Re: HELOC early disclosure
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,952
Bloomington, IN
Miss Kitty - No, you can use the 1st, 15th, last day of the month etc. The disclosure just has to be updated annually. FYI, we also use the 1st day of January.

Ahou -

From our HELOC disclsoure:

10. VARIABLE RATE FEATURES. This line of credit has a variable rate feature and the annual percentage rate (corresponding to the periodic rate) and the minimum monthly payment can change as a result. The annual percentage rate includes only interest and not other costs. The annual percentage rate is based on the value of an index. The index is the base rate on corporate loans posted by at least 75% of the nation's 30 largest banks known as the Wall Street Journal Prime Rate and is published in the Wall Street Journal. To determine the annual percentage rate that will apply to your line of credit, we add a margin to the value of the index and then round to the nearest .125 percent. Ask us for the current index value, margin, and annual percentage rate. After you open a line of credit, rate information will be provided on periodic statements that we send you.

From our ARM disclsoure:

HOW YOUR INTEREST RATE AND PAYMENT ARE DETERMINED
* Your interest rate will be based on an index plus a margin, rounded to the nearest .125 percent.
* Your monthly payment will be based on the interest rate, loan balance, and remaining loan term.
* Your payment will be rounded to the nearest $0.01.
* The interest rate will be based on the weekly average yield on United States Treasury securities adjusted to a constant maturity of three years (3 Year Treasury Index) plus our margin rounded to the nearest .125 percent. Ask us for our current interest rate and margin.
* Information about the index is published weekly in the Wall Street Journal.
* Your interest rate will equal the index rate plus margin, rounded to the nearest .125 percent, unless your interest rate "caps" limit the amount of change in the interest rate.
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#487485 - 01/24/06 05:39 PM Re: HELOC early disclosure
Miss Kitty Offline
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Joined: Mar 2002
Posts: 721
California
Thank you Dan - as usual you're the greatest!

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#2047831 - 11/03/15 08:17 PM Re: HELOC early disclosure Miss Kitty
Newbie06 Offline
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Joined: Mar 2006
Posts: 663
I see that this post is old but I did want to bounce some information off you guys. For an employee loan we give .50% lower rate. The preferred rate verbiage is incorporated into the Credit Agreement and Disclosure but not on our early HELOC disclosures. Base on 1026.40 I feel that if we know that the customer will be getting a preferred rate we should be disclosing that on the early side. Is this correct?

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#2047847 - 11/03/15 08:56 PM Re: HELOC early disclosure ahou
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,952
Bloomington, IN
You are giving the employees a break in the margin and the margin does not have to be disclosed in the Plan Disclosure.

As long as you are properly contracting for and disclosing the preferred rate disclosure I think you are OK.
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