As long as both the customer and the bank anticipates that this account is actually going to be used as a revolving line of credit, then there is nothing wrong with it. But if all the customer is going to do is get the HELOC, take one advance to pay off the first lien and not do anything else with the account, then you are both using the line as a closed end credit.
Official Interpretation
43(h) Evasion; open-end credit.
1. Subject to closed-end credit rules. Where a creditor documents a loan as open-end credit but the features and terms, or other circumstances, demonstrate that the loan does not meet the definition of open-end credit in § 1026.2(a)(20), the loan is subject to the rules for closed-end credit, including § 1026.43.
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