The Conference of State Bank Supervisors (CSBS) and four federal regulatory agencies issued guidance to financial institutions regarding home equity lines of credit (HELOCs) nearing their “end-of-draw” periods.
The guidance describes how financial institutions can effectively manage their exposure when faced with HELOCs approaching expiration, specifically as it relates to the manner in which they communicate with borrowers via certain risk management policies and procedures.
“As HELOCs transition from their draw periods to full repayment, many borrowers will have the financial capacity to pay as agreed,” the guidance states. “Some borrowers, however, may have difficulty meeting higher payments resulting from principal amortization or interest rate reset, or renewing existing loans due to changes in their financial circumstances or declines in property values.”
The guidance includes several key points to implementing end-of-draw risk management principles and expectations, such as applying prudent underwriting for renewals and extensions, evaluating near-term risks, contacting borrowers through outreach programs and ensuring that refinancing and modification programs are consistent with regulatory guidance, including consumer protection laws and regulation, among other criteria.
In conjunction with CSBS, other agencies involved with the guidance issuance include the Office of the Comptroller of the Currency; Board of Governors of the Federal Reserve System; Federal Deposit Insurance Corporation; and the National Credit Union Administration.
View the guidance.
Written by Jason Oliva