1026.43
I don't get many emails for seemingly obvious reasons, but I got one inquiry on this on July 7, 2016 that is worth sharing.
- I wasn't planning on sharing it, but after providing the info requested, they never returned the favor of sharing info back, as such I felt it might as well become part of the public domain. No need to enlighten one side of the table without illuminating the other.
- This is the legal speed bump that most seasoned attorneys with too little knowledge would wipe out on. If you want to have a good fight about this, you'll have to get past this first glaring speed bump.
- With this info, you can see where and how jackass attorneys who actually could understand the relevant details would try to "play dumb" / "feign ignorance" in defense of this crock o' sh*t.
From: Anonymous Person
To: Bryan Canary
Date: July 7, 2016
Saw your naked bankers post on Facebook recently and that led me to your web sites. Not sure that I understand the ability to repay issue based on the exclusion of HELOCs:
1026.43
(a) Scope. This section applies to any consumer credit transaction that is secured by a dwelling, as defined in § 1026.2(a)(19), including any real property attached to a dwelling, other than:
(1) A home equity line of credit subject to § 1026.40;
Your thoughts?
To: Bryan Canary
Date: July 7, 2016
Saw your naked bankers post on Facebook recently and that led me to your web sites. Not sure that I understand the ability to repay issue based on the exclusion of HELOCs:
1026.43
(a) Scope. This section applies to any consumer credit transaction that is secured by a dwelling, as defined in § 1026.2(a)(19), including any real property attached to a dwelling, other than:
(1) A home equity line of credit subject to § 1026.40;
Your thoughts?
From: Bryan Canary
To: Anonymous Person
Date: July 7, 2016
Hello there,
I've been off this topic for a bit... had to do a quick refresh.
I'm assuming you are/represent:
My voodoo senses say you are with number 4. My intuitive side has said I should just answer this caring not who you are, so here we go.
Question Restated : You want to know why the Ability to Repay Analysis in 1026.43 applies to what was "called" a home equity line of credit and is seemingly excluded by 1026.43.a.1
I reviewed that 1026.43.a.1 in a great detail when I got started, as it seemed like a huge stumbling block. It in fact is the clause that made me take one step further back to basics (open and closed credit) and it turned what could have been a 20 hour study into 100+, but that was a really valuable 100 IMO.
Answer in Analogy form: You are using the acronym/ term HELOC without looking under the hood. We have no true HELOC agreements in play at this time. You are calling a chocolate vanilla twist ice cream cone a chocolate ice cream cone because the bankers have said they were selling a chocolate ice cream cone and you've never thought to do a really baseline analysis of open and closed credit as defined by our legal system.
Understanding open and closed credit in detail, hybrid credit agreements (Home Equity Plans that have draw periods ending with anything other than a balloon payment) is the key to understanding much about all of this mess. By understanding the hybrid agreements we are dealing with within the context of Reg Z, and by understanding the nature of credit as being only open or closed terms at any given time per Reg Z, you gain insight needed for not only my situation but all that has and is transpiring with these Agreements.
I have a second, more detailed set of Reg Z analysis that is not public yet. I may be able to give access to that might help with this understanding and much more. It was in fact written for me to step my way through all of this, initiated by the very clause you are asking about.
From memory, without any formal review of my notes and only skimming Reg Z ( http://www.consumerfinance.gov/eregulations/1026-40/2016-06834#1026-40-a ) .. here's my initial response to your question.
==================
Credit comes in 2 mutually exclusive forms -- open and closed
Open = revolving credit = line of credit = home equity line of credit (but dont confuse our current agreements with a true home equity line of credit as they are not that)
Closed = installment loans (any loan in which once a payment is made the credit that was paid off can not be re-accessed
The Banks were advertising HELOCs but they were originating Hybrid banking agreements comprised of an open end credit term and a closed end credit term. You have to understand this fact in detail to understand this entire mess.
Any true open end credit term can only end with a balloon payment. Period. End of conversation.
If an open end credit term, like a HELOC, which often has a 10 year renewable credit term (10 year draw period), ends with anything other than a balloon payment, it is in fact a hybrid banking agreement composed of an open end credit term followed by a closed end credit term. It's two terms in one agreement.
There is nothing "illegal" about such a combination of terms. The concept of a home equity "plan", as laid out in reg Z is what speaks to this. Be very cognizant of "Home Equity Plan" vs "home Equity Line of Credit" as referenced in Reg Z as those two beasts are only the same if the "plan" only contains an open end credit term (and no repayment term).
to your question now...
1026.43.a.1 excludes a "home equity line of credit" (open end credit) subject to 1026.40... [ home equity line of credit = open end credit only = open end credit only ends with a balloon payment only... thus it would be easy to see why ability to repay analysis on a repayment term would not be relevant..]
Now, go to 1026.40... it starts out with..."The requirements of this section apply to open-end credit plans secured by the consumer’s dwelling. "
Ok... great... so this is for open end credit plans... which are plans that would end with a balloon payment. Are we talking about balloon payments with these HELOCs? Nope..
The title of 1026.40 is "Requirements for Home Equity Plans" (not home equity line of credit, as we were referred to from 1026.43.a.1) As already stated Home Equity Plans are NOT necessarily synonymous with open end lines of credit..... and the sub section here... 1026.40.d.5 Payment Terms
"The payment terms of the plan. If different payment terms may apply to the draw and any repayment period, or if different payment terms may apply within either period, the disclosures shall reflect the different payment terms. The payment terms of the plan include;:
but wait... a repayment period is NOT an open end credit term... okay.. so they've just accomodated home equity plans with open end credit, and hybrid home equity plans with this disclosure clause.... but we were sent here only if this was open end credit... which it's not... So where would ability to repay for a closed end credit term come from? 1026.43...the place we started...
We just went in a loop... When a Home Equity Plan, which is part of a banking agreement, includes a repayment term (or when it ends in any form other than a balloon payment), , and when that repayment term amount is used for qualification purposes ( as it was for origination of my Banking agreement and as it was for the faux repayment term extension with BofA) you are dealing with closed end credit analysis, and thus 1026.43 is relevant for all aspects of ability to repay analysis.
-- if the above is too complex --
An even simpler question could be asked... and while this would be touch and go in a court room, it would be tough for a judge/jury not to agree. Reg Z lays out rules for ability to repay for closed in credit in 1026.43 and that section is titled Min Standards for transactions secured by a dwelling.
1) Are we working with a transaction secured by a dwelling? YES.. so the rules apply..
2) if we follow the path of the exception, (correctly or incorrectly) do we get to alternate ability to repay rules that woudl provide comparable guidance? NO...
In such case, either we have to assume we took a wrong turn OR the creators of Reg Z were so careless, they totally left out qualification criteria for the most poweful consumer credit product on the planet while detailing the criteria for it's closed end sibling. Could all attorneys in Congress have been so careless? Does it make sense this glaring omission hasn't been caught in 40+ years? NO... So we likely took a wrong turn..
-- This concept of "hybrid" credit as I'm referring to is documented --
I have included a high level written dialogue on this hybrid credit concept between two attorneys with ref to fed attorney agreement on my website. If you want that but can't find it, let me know and I'll point you to it. That doc was critical for me to confirm what I had intuitively figured out related to this situation. I found that doc after I had figured out what was up and before I dug into Reg Z... so my model and it were then used to figure out what/how to interpret Reg Z.... without that fundamental understanding, Reg Z would be useless.
Let me know if this makes sense... if you have questions, etc.
thanks
b
To: Anonymous Person
Date: July 7, 2016
Hello there,
I've been off this topic for a bit... had to do a quick refresh.
I'm assuming you are/represent:
- BofA, PNC or another bank caught up in this
- Fed Banker related
- Bar of SC or AL related
- FBI, CFPB or other alphabet related...
- Very savvy media related (not...)
- Banking family related
- Tinkler's brother
- Other...
My voodoo senses say you are with number 4. My intuitive side has said I should just answer this caring not who you are, so here we go.
Question Restated : You want to know why the Ability to Repay Analysis in 1026.43 applies to what was "called" a home equity line of credit and is seemingly excluded by 1026.43.a.1
I reviewed that 1026.43.a.1 in a great detail when I got started, as it seemed like a huge stumbling block. It in fact is the clause that made me take one step further back to basics (open and closed credit) and it turned what could have been a 20 hour study into 100+, but that was a really valuable 100 IMO.
Answer in Analogy form: You are using the acronym/ term HELOC without looking under the hood. We have no true HELOC agreements in play at this time. You are calling a chocolate vanilla twist ice cream cone a chocolate ice cream cone because the bankers have said they were selling a chocolate ice cream cone and you've never thought to do a really baseline analysis of open and closed credit as defined by our legal system.
Understanding open and closed credit in detail, hybrid credit agreements (Home Equity Plans that have draw periods ending with anything other than a balloon payment) is the key to understanding much about all of this mess. By understanding the hybrid agreements we are dealing with within the context of Reg Z, and by understanding the nature of credit as being only open or closed terms at any given time per Reg Z, you gain insight needed for not only my situation but all that has and is transpiring with these Agreements.
I have a second, more detailed set of Reg Z analysis that is not public yet. I may be able to give access to that might help with this understanding and much more. It was in fact written for me to step my way through all of this, initiated by the very clause you are asking about.
From memory, without any formal review of my notes and only skimming Reg Z ( http://www.consumerfinance.gov/eregulations/1026-40/2016-06834#1026-40-a ) .. here's my initial response to your question.
==================
Credit comes in 2 mutually exclusive forms -- open and closed
Open = revolving credit = line of credit = home equity line of credit (but dont confuse our current agreements with a true home equity line of credit as they are not that)
Closed = installment loans (any loan in which once a payment is made the credit that was paid off can not be re-accessed
The Banks were advertising HELOCs but they were originating Hybrid banking agreements comprised of an open end credit term and a closed end credit term. You have to understand this fact in detail to understand this entire mess.
Any true open end credit term can only end with a balloon payment. Period. End of conversation.
If an open end credit term, like a HELOC, which often has a 10 year renewable credit term (10 year draw period), ends with anything other than a balloon payment, it is in fact a hybrid banking agreement composed of an open end credit term followed by a closed end credit term. It's two terms in one agreement.
There is nothing "illegal" about such a combination of terms. The concept of a home equity "plan", as laid out in reg Z is what speaks to this. Be very cognizant of "Home Equity Plan" vs "home Equity Line of Credit" as referenced in Reg Z as those two beasts are only the same if the "plan" only contains an open end credit term (and no repayment term).
to your question now...
1026.43.a.1 excludes a "home equity line of credit" (open end credit) subject to 1026.40... [ home equity line of credit = open end credit only = open end credit only ends with a balloon payment only... thus it would be easy to see why ability to repay analysis on a repayment term would not be relevant..]
Now, go to 1026.40... it starts out with..."The requirements of this section apply to open-end credit plans secured by the consumer’s dwelling. "
Ok... great... so this is for open end credit plans... which are plans that would end with a balloon payment. Are we talking about balloon payments with these HELOCs? Nope..
The title of 1026.40 is "Requirements for Home Equity Plans" (not home equity line of credit, as we were referred to from 1026.43.a.1) As already stated Home Equity Plans are NOT necessarily synonymous with open end lines of credit..... and the sub section here... 1026.40.d.5 Payment Terms
"The payment terms of the plan. If different payment terms may apply to the draw and any repayment period, or if different payment terms may apply within either period, the disclosures shall reflect the different payment terms. The payment terms of the plan include;:
but wait... a repayment period is NOT an open end credit term... okay.. so they've just accomodated home equity plans with open end credit, and hybrid home equity plans with this disclosure clause.... but we were sent here only if this was open end credit... which it's not... So where would ability to repay for a closed end credit term come from? 1026.43...the place we started...
We just went in a loop... When a Home Equity Plan, which is part of a banking agreement, includes a repayment term (or when it ends in any form other than a balloon payment), , and when that repayment term amount is used for qualification purposes ( as it was for origination of my Banking agreement and as it was for the faux repayment term extension with BofA) you are dealing with closed end credit analysis, and thus 1026.43 is relevant for all aspects of ability to repay analysis.
-- if the above is too complex --
An even simpler question could be asked... and while this would be touch and go in a court room, it would be tough for a judge/jury not to agree. Reg Z lays out rules for ability to repay for closed in credit in 1026.43 and that section is titled Min Standards for transactions secured by a dwelling.
1) Are we working with a transaction secured by a dwelling? YES.. so the rules apply..
2) if we follow the path of the exception, (correctly or incorrectly) do we get to alternate ability to repay rules that woudl provide comparable guidance? NO...
In such case, either we have to assume we took a wrong turn OR the creators of Reg Z were so careless, they totally left out qualification criteria for the most poweful consumer credit product on the planet while detailing the criteria for it's closed end sibling. Could all attorneys in Congress have been so careless? Does it make sense this glaring omission hasn't been caught in 40+ years? NO... So we likely took a wrong turn..
-- This concept of "hybrid" credit as I'm referring to is documented --
I have included a high level written dialogue on this hybrid credit concept between two attorneys with ref to fed attorney agreement on my website. If you want that but can't find it, let me know and I'll point you to it. That doc was critical for me to confirm what I had intuitively figured out related to this situation. I found that doc after I had figured out what was up and before I dug into Reg Z... so my model and it were then used to figure out what/how to interpret Reg Z.... without that fundamental understanding, Reg Z would be useless.
Let me know if this makes sense... if you have questions, etc.
thanks
b