Home Equity Loan ImprovementsWritten by Marc Sylvester
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* A description and itemization of loan fees that lender charges to open, use, or maintain account. These can be stated as dollar amounts or percentages. You must also give a total dollar estimate of fees imposed by third parties and invite customer to request more specific information. * The fact that negative amortization may occur and that it increases principal balance and reduces customer's equity. * Any limits on number and size of credit extensions within any time period and any minimum balance or draw rules, stated as a dollar amount. * A statement that customer should consult a tax advisor regarding deductibility of interest and charges. Q. If we offer a variety of home equity plans, are we required to have a separate disclosure notice for each one? A. No. The bank can choose to devise a separate plan disclosure for each home equity product or to use a more generic disclosure to cover all of them. If you use individual disclosures, you must inform customers that they should inquire about other options. If you use a single generic disclosure, you are required to spell out any linkages or relationships affecting availability of certain terms. For instance, if you tell customer that your home equity loans are available with certain payment plans, and if customer's opportunity to select these payment plans varies based on other loan terms, these restrictions would have to be explained. An example of such linkages: Say a bank offers two plans, one with a five-year term and other with a ten-year term. The bank permits interest-only payments under five-year plan, but requires payments of interest and principal under ten-year plan. A generic disclosure would have to point out such a difference. Q. Where do we get brochure that must be given out? A. You can either use model brochure provided by Federal Reserve Board or develop your own that is "substantially similar." If you want to use Fed's version, you can obtain a limited number of original copies from your Federal Reserve Bank and reprint them verbatim. You could also reprint Fed brochure with bank's name and logo. Q. The disclosures that go onto application forms seem fairly straightforward. But I foresee difficulties sending required notices out within three days for telephone, third-party, and magazine insert applications. Is this going to be a management problem area? A. Undoubtedly. You need to have a system and training for handling these applications. Staff should be directed to note them on a special log identifying applicant, time of receipt, and source of application. You then need to generate required disclosures and record date they were sent. Q. We must disclose circumstances under which we can change terms of plan and what changes may be. These could grow quite lengthy. Must they all be included in early disclosures? A. No. You can include them all if you want to; if you do, you need not group them with other early disclosures. However, if you prefer, you can simply disclose that borrower may obtain a list of conditions under which lender could take these actions. In either case, segregated disclosures must state that lender has right to terminate, accelerate, prohibit new advances, reduce credit line, or make other changes. You must also state fees for termination. Management tip: Designate which employees have authority to terminate or change plan terms. Then make sure these employees understand rules. Permitting decentralized decision-making could lead to legal and customer relations problems. Q. Our bank's home equity lines can be accessed with a credit card. Do we have to incorporate new credit card early disclosures (ABA BJ, June, p. 14) into those for our home equity plan? A. No. The Federal Reserve's new credit card rules specifically excluded such plans. Initial Disclosures Q. What is difference between "early" disclosures and "initial" disclosures? A. The early disclosures are ones added by this regulation--those that must be provided with application. The initial disclosures are main Truth-in-Lending disclosures that have always been required at or before loan consummation. Q. Does new rule affect initial disclosures we must make? A. Yes. You must include in initial disclosures early disclosure terms that do not duplicate already-required initial terms. In addition, initial disclosures must include full list of conditions under which bank can terminate or modify plan, incorporating, of course, restrictions described earlier. It is not sufficient here to simply tell customer that he may obtain such a list, in contrast to early disclosure requirements. Loan Agreement Q. Does regulation require changing our standard loan agreements? A. Very likely. As explained earlier, you must assure that agreement uses a publicly available index beyond your control; that it only permits early termination within circumstances permitted by regulation; and that any provision for changing terms spells out specifically both triggering event and resulting change. An example of latter: For an employee preferred-rate plan, contract must provide that a specified higher rate will apply if borrower's employment by lender ends. http://www.imdollar.com/home-equity-loan http://www.imdollar.com/
Marc Sylvester is expect based in Edison, NJ . He holds expertise in the banking and finance sector and is a consultant to leading business houses.
| | Bridge Loans: Everything You Wanted To KnowWritten by Marc Sylvester
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A typical bridge loan has a term of 12 months or less, with spreads ranging upwards from 225 over 30-day LIBOR depending upon lender's view of location, viability of project, and reputation and financial strength of developer. Commitment fees of 1% are common, although lower fees can sometimes be negotiated. In some instances, commitment fees on bridge loans can be credited against fees on subsequent loans from same lender. Guarantees required for such loans are highly negotiable. Our firm, The Singer & Bassuk Organization, has recently arranged over $250 million in bridge loans for seven separate transactions. In each instance, these loans have enabled developers such as The Moinian Group; Nathan Berman; a joint venture consisting of Cornerstone Real Estate Advisers, a wholly owned subsidiary of Massachusetts Mutual Life Insurance Company and Adellco LLC; and a joint venture comprised of Jeffrey Levine's Douglaston Development and Continental Properties owned by Fisch family, to acquire site control and arrange for orderly start of construction. I expect bridge loans to play an increasing role in New York financing and see a trend where lenders providing ultimate financing for a project's development to provide bridge loans in order to cement business and relationship at an early stage in an increasingly competitive market.
Marc Sylvester is expect based in Edison, NJ . He holds expertise in the banking and finance sector and is a conultant to leading business houses.
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