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#588565 - 07/26/06 04:03 PM
Lender Paid Fees on HELOC disclosure
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Platinum Poster
Joined: Mar 2001
Posts: 828
USA
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Our HELOC initial plan disclosure that is provided at application includes verbiage that reads "You must pay certain fees to third parties, etc...." and then provides a range $500-$1500. A couple of questions: If the bank pays all the closing costs, do we even need this verbiage? Or can we just include the verbiage but leave it blank? If the bank has "conditions" on how much they will pay, must this be indicated on the initial plan disclosure. An example: 100% closing costs paid on line up to $100,000? I appreciate your help. Thank you.
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#588566 - 07/26/06 04:10 PM
Re: Lender Paid Fees on HELOC disclosure
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10K Club
Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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Simply change your range from $500-$1500 to $0-$1500.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#588567 - 07/26/06 06:24 PM
Re: Lender Paid Fees on HELOC disclosure
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Platinum Poster
Joined: Mar 2001
Posts: 828
USA
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My understanding is that we do not have to disclose an "early closing" penalty if it is the borrower who elects to terminate the plan. However, if the condition is that "the customer will pay all closing costs if the minimum draw of $10,000 is not left outstanding for 1 year" - would this need to be indicated in the plan disclosure?
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#588568 - 07/26/06 06:25 PM
Re: Lender Paid Fees on HELOC disclosure
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10K Club
Joined: Sep 2002
Posts: 13,965
TN
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Yes it would have to be disclosed. We have a similar statement that the customer will have to repay closing costs of $X if the line is closed within three years.
Sorry you weren't able to make it to the Compliance Peer Group meeting yesterday. You missed a good one.
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#588569 - 07/26/06 06:28 PM
Re: Lender Paid Fees on HELOC disclosure
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New Poster
Joined: Mar 2006
Posts: 20
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Not to go off subject here but is the Heloc disclosure required to be signed and a copy in file?
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#588571 - 07/26/06 07:15 PM
Re: Lender Paid Fees on HELOC disclosure
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Platinum Poster
Joined: Mar 2001
Posts: 828
USA
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We do disclose the minium draw requirement which is $10,000 in our initial plan disclosure but I'm asking if this "condition" is a bank-imposed penalty or still one that is within the borrower's control? Does that make sense?
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#588572 - 07/26/06 07:27 PM
Re: Lender Paid Fees on HELOC disclosure
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10K Club
Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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I can't answer that with certainty, but IMO that is not a pre-payment penalty, that's a balance penalty. IOWs I could pay my balance to $5,000 and you are going to penalize me, and pre-payment penalties are usually only applicable under state law if the borrower pre-pays and closes the account.
As an example in the state of IN we can charge a pre-payment penalty on our HELOCs up to 2% of the outstanding balance less any rebates if applicable- however if the borrower only pays the balance to zero and does not close the account the penalty cannot be charged. And you cannot contract for such a charge you are referring to under IN law.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#588573 - 07/26/06 07:55 PM
Re: Lender Paid Fees on HELOC disclosure
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Platinum Poster
Joined: Mar 2001
Posts: 828
USA
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Ok, I understand. We are in 5 states and this is from our bank in Tennessee so I am not aware if TN permits this. I'll have to see if I can find out. I am working on disclosures for a teaser rate promotion which is prompting all these questions so thank you all for your input. One more question, in reading through section 226.6 paragraph 10 of the OSC, it appears to state that we would have to have verbiage indicating the initial rate, corresponding rate, current rate etc. in our initial plan disclosure. The version of the disclosure I have does not include all of that for our teaser rate promotion. Does the ARTA software provide a place to include this for a teaser/discounted rate? Thank you.
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#588575 - 07/27/06 03:49 PM
Re: Lender Paid Fees on HELOC disclosure
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Platinum Poster
Joined: Mar 2001
Posts: 828
USA
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I'm back....When we chose discount, this is the verbiage ARTA returned:
. The initial annual percentage rate is discounted - it is not based on the index and margin used for later rate adjustments. The initial rate will be in effect for 6 months. Ask us for the current index value, margin, discount and annual percentage rate. After you open a line of credit, rate information will be provided on periodic statements that we send you.
Is this sufficient? However OSC 226.6(a)(2) paragraph 10 reads that we would disclose (1) initial rate (expressed as a periodic rate and a corresponding annual percentage rate), together with a statement of how long it will remain in effect....in addition to some other items. Am I overthinking this? Thanks.
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#588576 - 07/27/06 04:17 PM
Re: Lender Paid Fees on HELOC disclosure
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10K Club
Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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You need to be looking to 226.6(e) for HELOC plans.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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#588577 - 07/27/06 05:43 PM
Re: Lender Paid Fees on HELOC disclosure
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Platinum Poster
Joined: Mar 2001
Posts: 828
USA
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So please help me understand, if this section does not apply to HELOCs when would the information in the commentary to 226.6(a)(2) for discounted variable rate plans apply? Credit card plans or other Open-end plans other than HELOCs?
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#588578 - 07/27/06 06:19 PM
Re: Lender Paid Fees on HELOC disclosure
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10K Club
Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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OK, let's back up for a moment to be sure you and I are on the same page. I think I may have went in the wrong direction after re-reading the post. You are referring to the initial disclosures required at account opening, correct?
If so, and if your rate is discounted then you must follow .6(a)(2). If you set up the Rate Definition properly, then ARTA will print an Initial Rate Addendum that complies with .6(a)(2).
I apologize for getting you off track. I was thinking correctly but I was getting the plan disclosure stuck in my head instead of the initial disclosure.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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#588579 - 07/27/06 09:29 PM
Re: Lender Paid Fees on HELOC disclosure
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Platinum Poster
Joined: Mar 2001
Posts: 828
USA
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Quote:
If you set up the Rate Definition properly, then ARTA will print an Initial Rate Addendum that complies with .6(a)(2).
Dan - thank you for your patience as I am working through this. Yes I am working on the plan disclosure provided at application. When we went into ARTA and selected "Initial Rate established by" and chose Discount I was told that we did not get an Addendum and got the verbiage per my previous post. I don't work with the software myself so this is a learning process for me. What else should we have done to get the Addendum?
Last edited by Halito; 07/27/06 09:30 PM.
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#588580 - 07/28/06 01:17 PM
Re: Lender Paid Fees on HELOC disclosure
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10K Club
Joined: Aug 2002
Posts: 47,530
Bloomington, IN
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The Plan disclosure must follow the provisions of 226.5b. 226.6 are the requirements for the initial disclosures required at account opening. This is why I was thinking we might be getting on different pages.
If you are using the ARTA Early Disclosures module, and if you have all the fields completed properly the ARTA Plan disclosure will be compliant.
The addendum I referred to is generated when you print the loan documents, not the plan disclosure.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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