Scenario: Customers have an existing HELOC with a credit limit of $75k (outstanding balance of $41k). Customers have applied to refinance their first mortgage on the secondary market. SM guidelines will not allow the LTV to exceed 95%... if the entire HELOC is advanced, the LTV would be in excess of 95%. If we lower the HELOC credit limit to $73k to stay within the CLTV of 95%, is this considered adverse action requiring a written notice meeting Reg B requirements? Or, is it acceptable to obtain a written statement signed by the borrower stating they agree with the reduction in credit limit and no adverse action notice is required?

This would be a voluntary reduction agreed to by the customers, so no adverse action.

In order to subordinate our deed of trust (HELOC) for the borrower's refinance of his first, we are reducing his available credit. The LTV is fine, but the borrower's DTI and credit score have dropped therefore we would like to reduce the available credit. The refinance of the first T/D will provide funds to pay down our HELOC to the reduced limit. The borrower is agreeing to this (voluntary) because he wants the subordination. Does this scenario fall into what is said above? Or since the bank is requiring this, does this require Adverse Action? Do we need a written statement signed by the borrower that they agree with the reduction?

If they are agreeing in order to refinance the 1st lien, then it is voluntary. Otherwise, they could stay where they are.

Our decision is based in part on their credit score, so would we owe the FCRA notice? Or because they will be signing a Change in Terms Agreement, is this not necessary?

The FCRA requires the bank to provide notice to the consumer if it takes adverse action based on information contained in a credit report. So, if we relied on information in a credit report to conclude that the consumer’s financial circumstances have changed so materially that the consumer will be unable to fulfill the HELOC repayment obligations, the bank must provide the FCRA adverse notice to the consumer if the bank suspends or reduces the HELOC. (This would not be needed if you did not rely on the credit report.)

1. You are not taking adverse action on the HELOC. You have countered on the refinance. You will make the loan if they agree to a lower credit limit on the HELOC. If they don't want to do that, then you have a denial of the refinance and the HELOC remains as it is.

2. If you are going to take action on the HELOC regardless, then you need to follow the Reg. B, FCRA and 1026.40 requirements, as applicable.

Thank you very much!!