HELOC teaser rate

We're planning on doing a teaser rate promotion for our HELOC program. Do we need to change the historical example table at all or can we keep the index and margin we normally use?

Your plan disclosure must reflect any discount or premium in the initial rate.

What if we use a fixed rate, of say, 6.99%? That's not based on any index, it's just a flat rate we're going to use. How do I express that in my historical example when there is no index or margin associated with this rate? I guess I'm a little confused.

The 6.99% will be a discount from your index and margin. The discount will be the difference between the current market rate and the 6.99% and it must be reflective in your historical example.

Thanks as always, Dan!

I have a related question - the bank has started doing risk-based pricing and I'm trying to determine how our teaser rate disclosure reflects that in the historical table. The bank has indicated that depending upon a borrower's qualification, their individual "go to" rate will vary. That is, one borrower may get prime +1 and another prime -1, etc. The Reg Z Commentary 226.5b(d)(12)(xi) paragraph 4 indicates that the creditor may select a discount that it has used during the six months preceding preparation of the disclosures and should disclose that the discount is one that the creditor has used recently and should be reflected for as long as it is in effect. We have several different HELOC plans and don't want to have to do a different disclosure for every possible rate scenario so my question is would we be in compliance to just reflect one of the rates the bank would have used? Would there be a preference to indicating the highest possible rate? Thank you. Happy New Year!

Adjusting the margin does not constitute a discount or a premium.

Ok, this is where I get mixed up. If the margin is the +1 or -1, what would constitute a discount?

Your market rate is the index plus a margin, whether that margin be a +1 or a -1. A discount, or premium, would be a rate that is calculated by a formula, or a set figure, different from the market rate. As an example if the market rate calculated at 6%, but the initial rate was 5% then you have discounted the rate by 1%.

"I have a related question - the bank has started doing risk-based pricing"

Risk-based pricing on HELOCs? I hope that you have the statistical information gathered and analyzed to support your pricing scenarios - otherwise I can see a disparate impact situation raising it's ugly head.

Thank you Dan. So for the early plan disclosure in the historical table, we would only be required to use a margin that we have used recently and then whatever the teaser rate will be as the discount? Market rate prime +2 or (10.25%) the teaser is 8.50 so our discount is 1.75%. But back to my original question, if there are other possibilities for the teaser based on "risk-based" pricing, then would we have to have a early plan disclosure for each scenario or just a representative? Thank you.

If I understand your plan correctly your margin is based on a risk based module. (BTW heed Randy's concerns) As an example, a grade 5 would get a +1, a grade 3 would get +0 and a grade 1 would get -1. The initial rate would also be based on these grades therefore affecting the discount. If this assumption is correct, and if there is no other differences in the plan then IMO a representative example showing a recent margin and discount would suffice.

Thank you Dan and Randy for your help.