Does anyone know how to set up a home equity line of credit so that if the customer chooses, they can change a portion (or all of the line) of the outstanding amount to a fixed rate loan? Would we use an addendum, would we need to change the important terms so that they know how the process works, etc. Of course this is something management would like to put into effect yesterday.

This is also a product that our bank wants to start offering. I am not sure where to begin. I haven't been able to locate a section under Reg Z that describes this. Any direction would be appreciated.

I am having the same problem. We have started a new product that has the option to convert to a fixed rate. Borrower's under the 'old' equity line are wanting their line of credit to work the same as the new product. Our new product also has a discount rate for 6 months. Do we do a change in terms? Do we have to give them the discount rate? Are our early equity line disclosures for the new product correct?
The previous institution I worked for went through the same scenario. It's been awhile, but I believe we did a change in terms transferring to the new product, but did not offer the discount rate.

Have you found an answer to your question?

You can change the terms of a HELOC with a written agreement signed by the customer. Get your legal counsel to draft a modification to the existing HELOC product. Outside of the Reg Z disclosures required for the new product feature, no other disclosure would be necessary (see 226.9(b)(2).

I believe that you can use a modification agreement which changes the principal amount, the interest rate, and the payment schedule. Both Fed and HUD said if the original note remains in effect, just modified by that agreement, the transaction is not a refinancing for TILA or RESPA purposes, and no new disclosures are required. The only exception is the one laid out in Regulation Z for substituting a variable rate for a fixed rate. That will be a refinancing, even if it is done through a modification agreement.

YHWB - You are referring to the rules that effect closed-end credit not an open-end credit such as a HELOC.

Thanks! So reading 226.9(b)(2), it seems that the only disclosures needed would be for any NEW features. So, the change in interest rate, floating to fix, or the length of the term, could all be accomplished solely with a properly written modification agreement, with no other disclosures?

"Whenever a credit feature is added or a credit device is mailed or delivered, and the finance charge terms for the feature or device differ from disclosures previously given, the disclosures required by §226.6(a) that are applicable to the added feature or device shall be given before the consumer uses the feature or device for the first time. "

"could all be accomplished solely with a properly written modification agreement, with no other disclosures? "

Yes

Thank you.

When the time comes that the customer decides to convert a portion of the HELOC balance to a fixed rate/payment, what disclosures are needed? As payments are made on the fixed portion, the available balance on the credit line would increase.

Would we follow 226.17(b)C-2 and provide closed-end TIL disclosures? What about a HUD-1 under RESPA? Anything else?

No - the fixed rate portions would be just segments of the overall credit line and the options to do this would have to be disclosed in the original early HELOC disclosure and agreement. You could execute a modification to an existing HELOC if the customer agreed to it in writing and you followed the subsequent disclosure requirements under 226.9. All segments of the overall HELOC would have to be properly disclosed in the monthly periodic statement.

These are not governed under the closed-end credit rules if you want to keep them part of the overall line.

I think I have the up front disclosures figured out. I'm wondering what is given to the customer when they actually exercise the option. Would we just have them sign a form stating how much of the balance they want to put into P/I, the payment amount, the term, and the rate?

I appreciate your help with this.

You probably want some sort of documentation of the request, but that could be a home grown form as it would not be governed by regulation.

When advertising the fixed-rate lock option, we have mentioned the APR and payment amount for an example locked portion. We have included all disclosures applicable to the fixed portion, but since this is all tied to a HELOC, would we need to include the advertising disclosures applicable to the rest of HELOC also? (i.e., variable rate, annual fee, APR, max rate, etc) I'm getting hung up on 226.16(b) where it says if any of the terms required to be disclosed under 226.6 are set forth, the fees and APR need to be disclosed. We've included these items for the lock portion but not for the overall HELOC. This particular ad is going to existing HELOC account holders.