Compliance question of the month: Are banks required to provide a homeownership counseling notice to all HELOC applicants?

A banker recently submitted the following query: My bank provides a homeownership counseling notice (Notice) that contains a list of counseling service organizations available in the applicant’s location only if, after application, it is deemed to be a high-cost mortgage, as defined in §1026.32(a)(1) of Regulation Z (Truth in Lending Act). We have been discussing internally whether the notice must be provided to all HELOC applicants or only to high-cost mortgage applicants

QAre banks required to provide a notice to all HELOC applicants, even if the HELOC is not a high-cost mortgage?

AYes. The notice must be provided to any applicant for a “federally related mortgage loan.” Section 1024.20(a) of Regulation X (Real Estate Settlement Procedures Act) requires that a list of homeownership counseling organizations be provided no later than three business days after receipt of an “application.” Application is defined as submission of financial information in anticipation of a credit decision relating to a “federally related mortgage loan,” which generally is a loan secured by a first or subordinate lien on residential real property that also meets certain other requirements. For additional guidance, see Section 5.1 “What homeownership counseling requirements apply to creditors regardless of whether or not they make high-cost mortgage?” in the Consumer Financial Protection Bureau’s Home Ownership and Equity Protection Act (HOEPA) Rule – Small entity compliance guide.

For more information, contact ABA’s Mark Kruhm.
Please note that this section is not a substitute for professional legal advice.

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