Is the customer using a home equity loan to serve as a bridge loan?
Home equity lines of credit (HELOCs) are increasingly popular tools in the sale and purchase of homes. Because a HELOC is an open end line of credit secured by a dwelling, there are special rules that apply. Open-end credit can take a variety of forms. The most familiar version is a traditional HELOC which operates much like a credit card in that the line of credit is drawn down, paid up, and drawn down again. As Regulation Z defines open-end credit, the parties contemplate repeated transactions. This type of program typically has a pre-authorized credit limit up to which the customer may draw – over and over as long as it is also paid down. Other HELOCs can be more complex, involving requests for draws by the consumer. These loans may look much like a construction loan except that they have an open-end feature involving repayment and additional draws. Regulation Z contains a confusing rule in 226.15(a)(1). First, it appears to state that every advance or draw under a HELOC is subject
