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Thursday, April 10, 2014

Right of Rescission in Home Equity Plans

QUESTION 
The User Guide to our Loan Origination System states that it provides all the “material disclosures” for the right of rescission in home equity plans, but it does not outline what disclosures are supposed to be given to the borrower. What are the right of rescission disclosure requirements for home equity plans?

ANSWER
There are five “material disclosure” right of rescission requirements for home equity plans. If these are provided to the consumer as part of the account opening disclosure requirements, the lender has satisfied the regulatory compliance mandates.

For purposes of the right of rescission in home equity plans, the following disclosures are considered “material disclosure” requirements:

1. The method of determining the finance charge and balance upon which the finance charge will be imposed.

2. Annual Percentage Rate (APR).

3. The amount or method of determining the amount of any membership or participation fee that may be imposed as part of the plan.

4. The length of the draw period and repayment period.

5. For both the draw period and repayment period, an explanation of how the minimum periodic payment will be determined and the timing of the payments, including the required disclosures if paying the minimum payment may or will result in a balloon payment.

[12 CFR § 226.15(a)(3), Footnote 36]

Jonathan Foxx
President & Managing Director
Lenders Compliance Group