Topic: Home Equity Line of Credit (HELOC)
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Do we have to consider the rate ceiling for our HELOCs to determine whether they are considered “high-cost” mortgage loans under the new CFPB HOEPA rules? Our HELOCs have rates that vary according to an index, but the maximum interest rate on the loans is very high.
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For purposes of determining whether a loan sets off the interest rate trigger under the CFPB’s new HOEPA rules, we do not believe that you would have to consider a HELOC’s rate ceiling, provided that the HELOC’s interest rate “varies solely in accordance with an index.” To determine whether such a HELOC sets off the…
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Can we roll closing costs into a HELOC?
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We are not aware of any restrictions on financing closing costs, and we agree that the closing costs should be itemized on the HELOC’s first monthly statement (though they do not need to be factored into the annual percentage rate). 12 CFR 1026.7(a)(6)(i)
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A husband and wife took out a joint home equity line of credit (HELOC) with us. The wife wants to freeze the line without the husband’s permission. The loan contract states that “you” can freeze the line, without specifying what is required when there is more than one borrower.
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The answer depends on your interpretation of the HELOC agreement, and the threshold question would be whether that agreement defines the term “you.” We are not aware of any laws that address whether a single co-borrower can unilaterally freeze a line of credit. Regulation Z’s HELOC rules permit you to either require the permission of…
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Does Illinois law prevent us from charging a lien release fee on the payoff of a HELOC?
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We are not aware of any restrictions on charging a Home Equity Line of Credit (HELOC) lien release fee, on the condition that your customer agreed to pay such a fee in your loan agreement. As to HELOCs, Section 4.1 of the Interest Act appears to prohibit such fees on revolving credit lines, as it…
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We know we must disclose that HELOC borrowers can request reinstatement if we, unilaterally, have reduced or have frozen the line of credit (for the reasons in 12 CFR 1026.40(f)(3)(vi). However, if a borrower agrees to a reduction or freeze (often after requesting a subordination of lien), do we still have to make the same disclosure?
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We do not believe that the HELOC rules regarding the reduction or freezing of a credit line require you to disclose that a customer can request reinstatement of a credit line in connection with a written agreement to reduce or freeze the line. Regulation Z permits creditors to freeze or lower the credit limit for…
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We got a warning from our mortgage form software stating that Illinois requires home equity loans to exceed $5,000. Is that true?
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The notice that pops up on home equity loans for amounts less than $5,000 is likely a response to the Interest Act, but we believe that your software vendor is taking an overly conservative position as to whether that limitation applies to financial institutions. The provision of the Interest Act at issue prohibits lenders from…
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Does Illinois impose a minimum of $5,000 for lines of credit secured by a home?
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The Interest Act does not allow a lender to take a security interest in real property for a revolving line unless the line of credit is in excess of $5,000. 815 ILCS 205/4.1. However, the Illinois Financial Services Development Act exempts any “financial institution,” including Illinois banks, from that requirement. The law applies “notwithstanding the provisions…
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Does Illinois require banks to have borrowers sign a “Home Equity Tax Advice Waiver”?
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We are not aware of any requirement under federal or Illinois law to obtain an acknowledgment or waiver related to the HELOC tax advice disclosure (the requirement to disclose “that the consumer should consult a tax advisor regarding the deductibility of interest and charges under the plan”). 12 CFR 1026.40(d)(11). The federal regulation requires only…
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Can you tell me what, if anything, Illinois state law says about HELOC fees?
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Illinois’s Banking Act and Interest Act allow banks to charge any fees agreed to by a borrower. 205 ILCS 5/5e
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If we are offering HELOCs with a 10-year draw period followed by a 15-year repayment period do we need to provide periodic statements during the repayment period?
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We believe that the bank should be able to structure its HELOCs so that they convert to a closed-end loan at the end of the draw period, though this would require closed-end disclosures at the time of conversion. We spoke to a senior counsel at the CFPB about this issue. She discussed the issue with…