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No Closing Cost or Flat Fee HELOC

Home Forums Truth in Lending/ Regulation Z No Closing Cost or Flat Fee HELOC

This topic contains 8 replies, has 4 voices, and was last updated by  robinharrell 2 years, 1 month ago.

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  • #6339

    Mary Frances
    Participant

    We have tier pricing for our HELOCs which is based on underwriting guidelines such as credit history, LTV and DTI. We are think of changing our HELOC program to no closing costs if the borrower falls into Tier A Pricing, $50 flat fee if the borrower falls into Tier B Pricing, $100 flat fee if the borrower falls into Tier C Pricing and $150 if the borrower falls into Tier D Pricing. We have looked at 1026.40 and the only thing we can find is the following:

    40(d)(7) Fees Imposed by Creditor
    2. Manner of describing fees. Charges may be stated as an estimated dollar amount for each fee, or as a percentage of a typical or representative amount of credit. The creditor may provide a stepped fee schedule in which a fee will increase a specified amount at a specified date. (See the discussion contained in the commentary to §1026.40(f)(3)(i).)

    40(d)(8) Fees Imposed by Third Parties to Open a Plan
    2. Itemization of third-party fees. In all cases creditors must state the total of third-party fees as a single dollar amount or a range except that the total need not include costs for property insurance if the creditor discloses that such insurance is required. A creditor has two options with regard to providing the more detailed information about third party fees. Creditors may provide a statement that the consumer may request more specific cost information about third party fees from the creditor. As an alternative to including this statement, creditors may provide an itemization of such fees (by type and amount) with the early disclosures. Any itemization provided upon the consumer’s request need not include a disclosure about property insurance.

    Our question is how do we set up our Early HELOC Disclosure to properly disclose our new programs?

    #6343

    rcooper
    Keymaster

    Do you have separate disclosures for each of these tiers now? If so, then you would include the fee applicable for each tier. If you use a combined disclosure then you can include the information for each tier, respectively, under your fees section. See the commentary 1026.40(a)(1)-4 below:

    4. Method of providing disclosures. A creditor may provide a single disclosure form for all of its home equity plans, as long as the disclosure describes all aspects of the plans. For example, if the creditor offers several payment options, all such options must be disclosed. (See, however, the commentary to §1026.40(d)(5)(iii) and (d)(12) (x) and (xi) for disclosure requirements relating to these provisions.) If any aspects of a plan are linked together, the creditor must disclose clearly the relationship of the terms to each other. For example, if the consumer can only obtain a particular payment option in conjunction with a certain variable-rate feature, this fact must be disclosed. A creditor has the option of providing separate disclosure forms for multiple options or variations in features. For example, a creditor that offers different payment options for the draw period may prepare separate disclosure forms for the two payment options. A creditor using this alternative, however, must include a statement on each disclosure form that the consumer should ask about the creditor’s other home equity programs. (This disclosure is required only for those programs available generally to the public. Thus, if the only other programs available are employee preferred-rate plans, for example, the creditor would not have to provide this statement.) A creditor that receives a request for information about other available programs must provide the additional disclosures as soon as reasonably possible.

    #6348

    Mary Frances
    Participant

    If I understand correctly we need to set up a disclosure for each tier with the costs associated with each tier unless we do the combined disclosure.

    Another question about the fees. How do we disclose the fees on the disbursement or HUD (even though a HUD is not required we still have one prepared if paying off another HELOC so the attorney controls the funds)? We will still have 3rd party fees that we have to pay such as attorney fee, recording fees and flood cert fees. And we will have our appraisal and processing fees that we normally charge that comes to the bank. Do we need to show all of these fees as an actual charge and then as a credit to zero out the borrower’s costs?

    #6352

    rcooper
    Keymaster

    Are you talking about how to disclose the no closing cost loan on the HUD?

    #6355

    Mary Frances
    Participant

    Yes, do we need to disclose all the HELOC fees on the HUD or Disbursement and then show as a credit to “reimburse” the borrower for the special closing cost program.
    We are probably making this harder than it needs to be.

    #6358

    rcooper
    Keymaster

    I agree with your analysis.

    The instructions for the HUD states: In the case of “no cost” loans where “no cost” encompasses third party fees as well as the upfront payment to the loan originator, the third party services covered by the “no cost” provisions must be itemized and listed in the borrower’s column on the HUD–1/1A with the charge for the third party service. These itemized charges must be offset with a negative adjusted origination charge on Line 803 and recorded in the columns.

    HUD FAQ’s 2010:
    3) Q: How does a settlement agent show a ―no cost loan on the HUD-1?
    A: In the case of ―no cost loans where ―no cost refers only to the loan originator‘s fees, a credit equal to the amount shown in Line 801 on the HUD-1 must be given in Line 802 of the HUD-1 so that the adjusted origination charge in Line 803 of the HUD-1 equals zero. In the case of ―no cost loans where ―no cost encompasses some or all third party fees and the origination charge, a credit should be listed in Line 802 of the HUD-1 to offset all fees encompassed in the ―no cost loan, resulting in a negative number for the adjusted origination charge on Line 803 of the HUD-1. The third party services covered by this offset must be itemized and listed in the borrower‘s column.

    #6791

    MCCompliance
    Participant

    I am looking for some feedback on “no-cost” HELOC programs. This is the first time we are doing something like this and would like to run it as a special.

    The bank is wanting to pay closing costs up to $1500 on HELOCs, but require the line be drawn a certain $ amount for 18 months. Does anyone have HELOCs set this way? The amount required to be drawn would be tiered based on the loan amount.

    How do we disclose the third party fees on the initial disclosure? Do we leave our original estimates or do we say $0- $xxxx, since we will be paying the majority (if not all) of the fees?

    I would greatly appreciate any feedback on this type of HELOC special.

    #6798

    rcooper
    Keymaster

    I haven’t seen this setup. My concern would be to avoid any potential deceptive or abusive criticism for waiving/covering closing costs, but requiring the borrower to maintain a specific balance which may cost them more than the closing costs would have. The balance requirements need to be explained very clearly in promotional materials and disclosures.

    If it is a no closing cost product you wouldn’t need to insert a range of third party fees, correct? If you anticipate some fees being charged then you couldn’t disclose it as “no closing costs”. (Requiring property insurance in connection with a no closing cost loan isn’t a problem as long as you disclose that the property insurance is required.) You could say something such as “We waive closing costs up to $1500” or “low fees”. Consider that some of these may be triggering terms which require certain disclosures in advertisements (see 1026.16 and its commentary).

    #11055

    robinharrell
    Participant

    NO COST HELOC – how should it be handled when all closing fees are paid by the lender? How should we disclose and how should we show it on the disbursement at closing.

    We believe that we should not show the loan fee we usually charge because that fee would come to us anyway. Do we need to show fees subject to the finance charge if they are being paid by the lender? (for example… flood life of loan fee, loan fee to lender)

    There are several other banks in our area offering this special right now. We want to make sure we are disclosing as we should.

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