I have seen much information that tells me we are supposed to be collecting GMI on HELOC's, when we refi a primary dwelling, to be compliant with Reg B. But i have not seen anything to really differentiate between 1st position HELOCs and 2nd position. our Compliance officer says we only have to collect GMI on a 1st to be Reg B compliant. Anybody heard the same or follow the same?

An application for an open-end home equity line of credit is not subject to this section unless it is readily apparent to the creditor when the application is taken that the primary purpose of the line is for the purchase or refinancing of a principal dwelling. . .

To the best of my knowledge lien position does not affect this requirement.

For what it's worth....I have done a TON of purchase money HELOC transactions and this is how we do it (and our regulators have never had a problem or concern about it)...if you do a HELOC for $100,000 and $50,000 of the line is going toward the purchase of the home, then you would have the borrower sign the RTC at closing which allows them to rescind on the other $50,000 that was not used for the purchase of the home. If the line is for $50,000 and all $50,000 is being used toward the purchase of the home, then you do not have them sign a RTC, since the line was fully funded for the purpose of purchasing the home.

But subsequent advances that are not part of the RMT are subject to rescission. You would therefore have to provide them the ROR at the beginning of the loan or each time they took a subsequent advance.

If you search using "purchase money HELOCs" you will find numerous discussions with regulatory cites.

You would be able to advance the $50,000 in both of your examples immediately without the ROR, however you would not make any subsequent advances until the ROR expired.

So, if they get a line for $50,000 and all $50,000 was used for purchase money AND they did a principal pay down say a week after closing for $10,000, then technically they have the RTC on the new available amount of $10,000? So, if we do not have them sign a RTC at closing, technically they have 3 years to rescind on any advances taken after closing that were not purchase money?

That would be a possibility. Or you can provide the RTC for each subsequent advance.

If you use ARTA Lending they have a specific RTC form for these loans. I'm not sure what the form number is.

We use the following. It was provided by a BOL user. I'm sorry I don't remember their name to give them credit.

This is an addendume to the RTC.

ADDENDUM to Your Right to Cancel

We have agreed to establish an open-end credit account for you, and you have agreed to give us a security interest in your home as security for the account. The terms of the agreement allow subsequent advances on your account when the amount borrowed is less than the credit line. You have a legal right under federal law to cancel the right to make subsequent advances on your account, without cost, within three business days after the latest of the following events:

(A) the date of the opening of your account which is ______________; or
(B) the date you received your Truth-in-Lending disclosures; or
(C) the date you received this notice of your right to cancel the right to make subsequent advances on your account.

If you cancel the right to make subsequent advances on your account, your cancellation will only apply to subsequent advances. It will not affect the amount advanced for the purpose of purchasing your home when the account is opened, and it will not affect the security interest we have in your home. Within 20 calendar days after we receive your notice of cancellation, we must take the necessary steps to reflect the fact that your home does not secure subsequent advances on your account, and we must return any money you have given to us or to anyone else in connection with any subsequent advances.

I hereby acknowledge receipt of two (2) copies of this addendum. Should I decide to cancel my right to subsequent advances, I shall do so by midnight of _____________________ by sending a copy of the Notice of Right to Cancel along with a copy of this addendum to the address specified on the Notice of Right to Cancel.


_____________________________________ ________________
Date

_____________________________________ ________________
Date

Ok....so since it would be a ridiculous pain to give them a ROR for each subsequent advance, it would just be esier to give them the ROR at closing.

Now the question is....if we recently closed (on 5/23 in fact) a purchase money HELOC (limit was $98,000 and all of it was used for the purchase) and WE DID NOT have them sign a ROR at closing, does this mean we have to give a ROR for each subsequent advance? Or is there a way to cure it?

I won't say this is a cure but it could be "damage control". Provide them the RTC for subsequent advances now and do not make any subsequent advances until the rescission period expires.

This is from the Commentary to 226.15:

Residential mortgage transaction. Although residential mortgage transactions would seldom be made on bona fide open-end credit plans (under which repeated transactions must be reasonably contemplated), an advance on an open-end plan could be for a downpayment for the purchase of a dwelling that would then secure the remainder of the line. In such a case, only the particular advance for the downpayment would be exempt from the rescission right.

Since subsequent advances would not be part of the advance for the RMT they would not be exempt.