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Thursday, September 5, 2013

Home Equity Line of Credit (HELOC): Disclosures

We are a broker that frequently takes applications for home equity lines of credit (HELOC) for a lender. Do we have a duty to make disclosures to the applicant? 

Your duty as a broker to make disclosures with respect to a HELOC depends on whether the lender has provided you with both the application and the disclosures. To the extent the lender has not provided the disclosures to you, you, as a third party broker, have no obligation to disclose. However, if the lender provided you with both the applications and disclosures, you do have a duty to disclose. In each instance, you have a duty to provide the consumer with the home equity brochure entitle “What You Should Know About Home Equity Lines of Credit” or a similar brochure.

Pursuant to the Real Estate Settlement Procedures Act (RESPA), with respect to a home equity plan covered under Regulation Z, “a lender or mortgage broker that provides the borrower with the disclosures required by 12 CFR 1026.40 of Regulation Z at the time the borrower applies for such loan shall be deemed to satisfy the requirements of this section”.  [12 CFR 1024.7(h)]

Section 40(c) of Regulation Z addresses the duties of third parties to disclose. “Persons other than the creditor who provide applications to consumers for home equity plans must provide the brochure required under paragraph (e) of this section at the time an application is provided. If such persons have the disclosures required under paragraph (d) of this section for a creditor’s home equity plan, they also shall provide the disclosures at such time.”

The Official Interpretation to Section40(c) makes it clear that a third party has no duty to obtain disclosures about a creditor’s home equity plan or to create a set of disclosures based upon what the third party knows about the creditor’s plan. However, if the creditor provides the third party with disclosures along with the creditor’s application form, the third party must provide those disclosures to the consumer together with the application. If the third party received the application via telephone, the third party may mail the disclosures and brochure within three business days of receipt of the application.  [12 CFR 1026.40(c)]

*Joyce Pollison
Director/Legal and Regulatory Compliance
Lenders Compliance Group