By: Andrew Pizor
February 22, 2023 — Issue Brief
Consumers with HELOCs have substantially fewer and weaker protections than homeowners with other types of mortgages:
- The federal Flood Disaster Protection Act does not require servicers to escrow for flood insurance for HELOCs.
- The Electronic Funds Transfer Act does not apply to HELOCs.
- The minimum number of loans a lender must originate before becoming subject to the Home Mortgage Disclosure Act (HMDA) data reporting requirements is significantly higher for HELOCs than closed-end loans.
Parts of the Truth in Lending Act and Regulation Z exclude or have
weaker coverage for HELOCs:
- Under TILA, the APR for a HELOC includes only interest—all other finance charges are disregarded when calculating the APR.
- TILA’s restrictions on loan originators, their compensation, and steering do not apply to HELOCs.
- TILA’s bans on mandatory arbitration clauses and on financing credit insurance only apply to HELOCs secured by the consumer’s principal dwelling.
- TILA’s duty to underwrite for ability to repay only applies to high-cost HELOCs.
- TILA’s additional protections for higher-priced mortgage loans do not apply to HELOCs.
- TILA’s ban on imposing fees before the creditor has provided the required early disclosures or account-opening disclosures does not apply to HELOCs.
- The ban on pyramiding late fees for closed-end mortgages only applies to high-cost HELOCs.
- The TILA-RESPA integrated disclosure rules and forms do not apply to HELOCs.
- Lenders are not required to provide the good faith estimate (HUD-1) described in Regulation X. Instead HELOCs are only subject to the special HELOC requirements in Regulation Z, which are substantially less consumer-friendly.
- The disclosures for regular credit cards and those tied to a HELOC cannot be compared, making it difficult for consumers to know which credit card to use.
The Real Estate Settlement Procedures Act and Regulation X also have weaker rules for HELOCs:
- In general, RESPA’s servicing rules do not apply to HELOCs whenever the Act or rule uses the term “mortgage loan.”
- The duty to provide a transfer of servicing statement, the 60-day ban on late fees, and the 60-day safe harbor for payments sent to the old servicer do not apply to HELOCs.
- The duty to respond to a qualified written request, including notices of error and requests for information, does not apply to HELOCs.
- HELOC creditors and servicers are not subject to the Regulation X duty to respond to a request for the name of the note owner.
- The Regulation X obligation for servicers to maintain certain policies and procedures does not apply to HELOCs.
- The Regulation X requirements pertaining to loss mitigation, early intervention, and maintaining continuity of contact do not apply either.
