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Thursday, February 9, 2017

Alternate Closing Disclosure and HELOCs

QUESTION
We have been using the Alternate Closing Disclosure Form for our refinance transaction. But it does not include a HELOC field for stating draws. By the way, our input is based on the information we put into DU. But what happens if the cash to/from borrower in DU does not match the amount stated on the Alternate Closing Disclosure? We have asked our compliance counsel but they were not sure about how to process the field information onto the form. What scenario can you provide for this situation?

ANSWER
The Alternate Closing Disclosure Form (“ACD”) for refinance transactions unfortunately does not have a field for stating HELOC draws. Generally, it is acceptable if the cash to/from borrower in DU does not match the ACD form. This is due to the fact that the automated engine is programmed to look for the draw amount to be in the Details of Transaction in order to accurately calculate the CLTV. However, the ACD form simply does not have that data stated in its calculation.

There are a few scenarios where this situation plays out in HELOC transactions.

The following five scenarios are applicable.

1) Purchase transaction with a new HELOC (with or without a draw).
  • Drawn amount of the HELOC entered in line j of the Details of Transaction (DOT).
  • Monthly payment for the amount drawn on the new subordinate lien entered in Section V, Proposed Monthly Housing, Other Financing P&I.
  • No draw, enter $0.00.

     2) Refi with a new HELOC (no draw).
  • No draw, enter $0.00 on line j of the DOT.

     3) Refi with a new HELOC (draw)
  • New draw entered in line j of the DOT.
  • Monthly payment for the draw on the new subordinate lien entered in Section V, Proposed Monthly Housing, Other Financing P&I. This scenario is a bit complicated by the fact that the CFPB has indicated they do not want the drawn amount included in the final cash to close; therefore, there will be a discrepancy between the DU/1003 cash to close and the Alternative CD cash to close by the amount of the draw.

     4) Refi with an existing HELOC (no draw)
  • As an existing HELOC, DU will produce a transaction report that actually shows it on the credit report and imports the balance into the liabilities section.
  • No new draw, so no entry on the DOT is required.
  • Monthly payment that shows the outstanding balance of the existing HELOC entered in Section V, Proposed Monthly Housing, Other Financing P&I.

     5) Refi with an existing HELOC (draw)
  • Draw is indicated in one of two places:
  • Either in line j of the DOT with the remaining balance in liabilities screen,
  • Or draw plus the balance stated in liabilities screen.
  • If liabilities screen is used, the new draw is stated in Other Liquid Asset to ensure there are credit for the funds.
  • Either entry is acceptable, and the CLTV would calculate accurately.
  • Monthly payment associated with the new outstanding balance of the existing HELOC entered in Section V, Proposed Monthly Housing, Other Financing P&I.

Jonathan Foxx
Managing Director 
Lenders Compliance Group