Workout Loans under the ATR rules

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    We have HELOCs that have a balloon (interest only payments) that our collections department sends through as workouts and changes the loan to a Home Equity Loan. Since the loan products are changing from open-end to closed-end, our process has been to do a new loan with new disclosures. Since these customers are not in the best financial state, I am worried about the ATR rules. I know that we can set the DTI limit for these types of loans but worried about the verification of income, employment, etc.

    My question is – is there a way that we can modify the original HELOC to a closed end loan before the maturity date of the HELOC? Would we need to give the full set of closed-end disclosures with the modification? If we can’t continue to work with these loans, the next step would be foreclosure and that’s not in anyone’s best interests.


    Here is a similar question posted in a forum a few weeks back.

    § 1026.43 does not apply to any change to an existing loan that is not treated as a refinancing under § 1026.20(a). However, the commentary doesn’t address what to do in your particular situation regarding an open-end in default modified to a closed end. IMO, this would be worth consulting your attorney before you implement a new procedure for these types of transactions. Either way – refinancing or modification – you would need to give new disclosures. See commentary 1026.40 -5


    If the loan is going from open end to closed end then it is a refinance under TIL even if it is done as a modification.

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