Guess what we're considering now? I think I can handle the Reg. Z disclosure issues. Does anyone have any thoughts as to whether a HELOC plan which allows the borrower to carve out a portion and lock in a fixed rate would be permitted in Texas? This would be during the draw period and repayment on the HELOC or the fixed rate portion would replenish the available credit line. Payments will consist of accrued interest on any unlocked HELOC balance plus a principal and interest payment on the locked portion. At the end of the draw period the entire outstanding balance will be fully amortized over the remaining term of the HELOC (we're still debating what to do with the rate at that point).

I can't think of any reason why we couldn't do this in Texas as long as our HELOC meets all the requirements for Texas HELOCs. Anyone disagree?

I saw a discussion on this recently. First, get counsel very familiar with Texas laws. You'd be going from one loan type to another. This means you may not be able to do anything during the first year, you'd have state and federal rescission periods and more.

Andy - Sorry - coming late to the party - been out of the country.

I don't think this is a switch between loan types. Typically, this is all done under the LOC umbrella, it just provides different options on how payments are calculated for portions of the line. I'm not aware of anything in the Texas Home Equity laws that would prevent a bank from offering these options - although your advice regarding the assistance of counsel is right on.

Thanks, guys! Randy, you're right in that the fixed rate portions will still be done under the LOC umbrella and the LOC available credit will be replenished as the fixed rate portion is repaid. I was of the opinion that this would continue to fall under the open-end rules of Reg. Z per OSC to 226.5b - 5 but you never know if Texas law will be more restrictive as to terms on equity credit agreements. We will definitely seek input from counsel as well.

Juliad,

This is a pretty common feature of HELOCs and I believe that I worked in one of the first banks to actually implement these types of features within a program around 1990, which is about the time that the Home Ownership and Equity Protection Act first raised it's ugly head. While we had issues from the processing side, as the core loan processing systems did not have any modules that would handle it at that time and we had to develop our own coding, the disclosure side is not really that difficult. Getting the periodic statements to be produced under Reg Z does still present issues unless your core system actively supports this feature. Although I have not personally reviewed any banks in Texas that offer this feature, like I said, IMHO, it should be possible as long as you also follow the other Texas specific regulations. Good luck!