Skip to content
BOL Conferences Top Gun 23
Thread Options
#622509 - 10/06/06 07:21 PM HELOC w/fixed rate options
complyshy Offline
Junior Member
Joined: Oct 2006
Posts: 40
My lending dept. wants to offer fixed rate/fixed term options from HELOC availability. I am trying to determine the Reg Z open-end requirements. Would these individually documented loans be considered draws and have to be included on the periodic stmt with all the periodic stmt disclosure requirements? Or since they are closed-end am I digging to deep? This is my first post and I really would appreciate your assistance.
_________________________
--me

Return to Top
Lending Compliance
#622510 - 10/06/06 07:23 PM Re: HELOC w/fixed rate options
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 80,336
Galveston, TX
Typically, they are just a feature of the overall open-end plan and remain subject to all of the open-end rules.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#622511 - 10/12/06 12:01 PM Re: HELOC w/fixed rate options
complyshy Offline
Junior Member
Joined: Oct 2006
Posts: 40
That's what I was afraid of. --Thanks so much!!!

Return to Top
#727900 - 05/07/07 10:43 PM Re: HELOC w/fixed rate options complyshy
Jan94 Offline
Platinum Poster
Joined: Mar 2001
Posts: 828
USA
We are also working on a similar product and I'm a little confused about how to show the fee the bank wants to charge for exercising the "option" on the periodic statement. The fee would be assessed when the borrower decides to exercise one of their options. Our disclosure and plan agreement provides that the APR only includes interest and not other costs. Right now I'm told it will be described as a "finance charge" on the fixed rate option statement and that it will appear in the APR on the first statement but on the next statement cycle, the APR will go back to what it was prior to the fee.

I'm not sure if this would be the correct reference but I'm reading in the OSC 226.7(f) paragraph 8 "Start-up fees. Points, loan fees, and similar finance charges relating to the opening of the account that are paid prior to the issuance of the first periodic statement need not be disclosed on the periodic statement." It goes on to state that "if however these charges are financed as part of the plan, including charges that are paid out of the first advance, the charges must be disclosed as part of the finance charge on the first periodic statement." Ok so far, but then it reads "However, they need not be factored into the annual percentage rate. (See footnote 33 in the regulation)." I think I understand that this fee is a finance charge but guess I am not clear on whether this fee is related to the "opening of an account"???

Return to Top
#728692 - 05/09/07 05:03 AM Re: HELOC w/fixed rate options Jan94
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 80,336
Galveston, TX
No - it's a transaction fee.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#730892 - 05/11/07 09:16 PM Re: HELOC w/fixed rate options rlcarey
VickieH Offline
New Poster
Joined: Mar 2006
Posts: 11
I have posted a question in the California Forum as my bank is offering this same product.
Luckily we are not charging a fee.
My questions are, are you producing a new Note for the individual loans? Are you documenting and boarding the individual loans as secured by the property? Are you doing a change in terms on the HELOC? We have one borrower who has exercised this option and has asked for a 1098. Are you producing 1098's for these individual loans?
I need to know the mechanics of how this product should work as far as documentation.

Return to Top
#730960 - 05/12/07 04:05 AM Re: HELOC w/fixed rate options VickieH
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 80,336
Galveston, TX
My questions are, are you producing a new Note for the individual loans?

The fixed rate option is covered in the original agreement - there are no "new" notes.

Are you documenting and boarding the individual loans as secured by the property?

See above.

Are you doing a change in terms on the HELOC?

See above.

We have one borrower who has exercised this option and has asked for a 1098. Are you producing 1098's for these individual loans?

See above - you produce them for your HELOCs - right?

I need to know the mechanics of how this product should work as far as documentation.

Consult your attorney.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#731353 - 05/14/07 05:37 PM Re: HELOC w/fixed rate options rlcarey
VickieH Offline
New Poster
Joined: Mar 2006
Posts: 11
Thank you!

Return to Top
#1598822 - 08/31/11 07:22 PM Re: HELOC w/fixed rate options VickieH
Tesla Offline
Power Poster
Joined: Nov 2003
Posts: 3,694
On a HELOC with a repayment phase (10/10), I am not sure if I am reading the commentary correctly. We offer a variable rate, open end HELOC that automatically "converts" with no action by the consumer to a variable rate, closed end "repayment" phase. We are disclosing this in the application disclosure and the agreement and showing two payment streams.

But I am confused by this section of the commentary: 226.17(b)2. Converting open end to closed end credit. Except for home equity plans subject to 226.5b in which the agreement provides for a repayment phase (does this except carry through the whole comment?), if an open end credit account is converted to a closed end transaction under a written agreement with the consumer, the creditors must provide a set of closed end credit disclosures before the consummation of the closed end transaction. (See the commentary to 226.19(b)for timing rules...) This is the part I think would apply to us unless the beginning "Except..." carries through through the whole comment If consummation of the closed end transaction occurs at the same time as the consumer enters into the open end agreement, the closed end credit disclosures may be given at the time of conversion. If disclosures are delayed until conversion and the closed end transaction has a variable rate feature, disclosures should be based on the rate in effect at the time of conversion. (See commentary to 226.5 regarding conversion of closed end to open end.)

I think the sentence that begins with If consummation... applies to our situation, but the "argument" is the note does not "convert" it just "becomes" a closed end product. My concern is 10 years from now the consumer is not going to remember what they signed and, since the closed end rate is variable, could be in for a big surprise. I think it makes sense to re-disclose when the note "converts from" open end to closed end, but if the regulation does not require it, I don't believe we will do it. Please help! smile
_________________________
It's not that I take life for granted. It's only that the good won't make it. Innocence dies, while Villany Thrives.

Return to Top
#1598986 - 09/01/11 03:35 AM Re: HELOC w/fixed rate options Tesla
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 80,336
Galveston, TX
The except carries through. These remain open-end credit throughout the draw and repayment phase and as such all open-end credit rules continue to apply, including the monthly periodic open-end statements.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#1599435 - 09/01/11 09:12 PM Re: HELOC w/fixed rate options rlcarey
Tesla Offline
Power Poster
Joined: Nov 2003
Posts: 3,694
Thank you Randy- even though you are proving me wrong! wink
_________________________
It's not that I take life for granted. It's only that the good won't make it. Innocence dies, while Villany Thrives.

Return to Top
#1927196 - 05/28/14 06:56 PM Re: HELOC w/fixed rate options Tesla
Tarhe Offline
Diamond Poster
Joined: Nov 2006
Posts: 1,290
California
We have a similar situation, only it is not a HELOC, but rather an unsecured consumer revolving line. It revolves for 5 years, then automatically enters a 5-year fully amortizing repayment period. The rate changes from variable to fixed during the repayment phase. All of this is addressed in the agreement. From what I read above, this is just a "feature" of the overall open-end plan, and would not require closed-end disclosures at the time of conversion. It would remain subject to the open-end rules. Nothing changes from the comments above because this is not a HELOC, does it? When the variable rate becomes fixed, no further disclosures are due (like when a fixed rate becomes variable?) Also, when the repayment phase begins, the periodic statement will advise the consumer of the P & I amounts, rate, due date, etc., we do not need to send a Change in Terms? It just feels like we're missing something . . .

Return to Top
#1927200 - 05/28/14 06:57 PM Re: HELOC w/fixed rate options complyshy
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 80,336
Galveston, TX
Sounds like you have it under control.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#1927215 - 05/28/14 07:07 PM Re: HELOC w/fixed rate options rlcarey
Tarhe Offline
Diamond Poster
Joined: Nov 2006
Posts: 1,290
California
Thanks!

Return to Top

Moderator:  Andy_Z