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Home , Home equity loan

CLOSED- END (FIXED) EQUITY

Regulation Z defines “closed-end credit” as consumer credit other than “open-end credit”

Closed-end are those loans in which the credit union agrees to loan a certain amount to the member. The member agrees to repay that amount over a stated period of time at an agreed upon interest rate. The member cannot re-borrow any portion that has been paid back.

Closed-end (fixed) loans are closed-end loans secured by the member’s dwelling. These types of loans are often referred to as loans, even though they may not be in second position.

Regulation Z- Closed End Home Equity Loans

Disclosure Requirements

The federal Truth in Lending Act governs all consumer credit transactions. Regulation Z (Reg Z) requires certain disclosures be made to the member before consummation of a closed-end home .

1. Loan Estimate: For closed-end credit transactions secured by real , Reg Z !1026.19€ requires Credit Unions to provide members with good-faith estimates of credit costs and transaction terms on a document called the Loan Estimate. The Loan Estimate must be in writing and only contain the information prescribed in !1026.37.

Regulation Z (Reg Z) requires certain disclosures be made to the member at consummation of a closed-end home equity loan.

1. Disclosure- For loans that require a Loan Estimate and that proceed to closing, Reg Z !1026.19(f) requires credit unions to provide a Closing Disclosure, which is a final disclosure reflecting the actual terms of the transaction. The Closing Disclosure must be in writing and only contain information prescribed in !1026.38.

2. Notice of Right to Cancel- Reg Z !1026.23 requires each member who has ownership interest in the property and gives a security interest in his or her principal dwelling must have a right to rescind or cancel the credit transaction without penalty.

Real Estate Terms Used in Closed-End Home Equity Lending

This section gives a nontechnical introduction to terms used in home equity lending.

The Note is the contractual document the borrower(s) signs to promise to repay the debt. To protect the Credit Union if the borrower(s) does not repay, the Security Instrument (Mortgage, of Trust, or Security Deed) gives the Credit Union a security interest in the borrower’s property. The borrower(s) promises to protect the Credit Union’s rights in the home by signing the security instrument, and acknowledges that they can lose their home if they fail to repay the debt or become delinquent. On the Mortgage, the borrower(s) can be called the mortgagor and the lender the mortgagee. On the lending documents, the borrower(s) is called the borrower(s) and the Credit Union is called the lender or holder of the mortgage. Before approving a loan, a title examination should be done to find out who has rights in the property. In some areas, attorneys review the abstracts of title which list all matters affecting the property.

After the borrower(s) sign the security instrument, the Credit Union records the security instrument in a local government office. A properly recorded security instrument places a lien against the described in the security instrument. A lien is a claim against the property. Under certain circumstances who has the lien can foreclose and sell the property to repay the debt. A person or organization that has a lien is called a lienholder.

If there is more than one lien against the property, all are secured by the property. The different liens are arranged according to priority. As a general rule, the holder who records earlier has priority over lienholders who record later. In a , the lien with the first priority is paid first. If there is sufficient money left, then the lien with second priority is paid.