Highlights: 

The agencies have found that in some cases credit risk management practices for home equity lending have not kept pace with the product's rapid growth and eased underwriting standards.

The attached home equity lending guidance outlines the agencies' expectations for sound underwriting standards and effective credit risk management practices for a financial institution's home equity lending activity.

The guidance describes sound risk management systems for:

• Product Development and Marketing
• Origination and Underwriting
• Third-Party Originations
• Collateral Valuation Management
• Account Management
• Portfolio Management
• Operations, Servicing, and Collections
• Secondary Market Activities
• Portfolio Classifications, Allowance for Loan and Lease Losses (ALLL), and Capital

Continuation of FIL-45-2005 

Distribution: 
FDIC-Supervised Banks (Commercial and Savings) 

Suggested Routing: 
Chief Executive Officer 
Compliance Officer 
Chief Lending Officer 

Note: 
FDIC Financial Institution Letters (FILs) may be accessed from the FDIC's Web site at www.fdic.gov/news/financial-institution-letters/2005/index.html . 

To receive FILs electronically, please visit http://www.fdic.gov/about/subscriptions/fil.html . 

Paper copies of FDIC FILs may be obtained through the FDIC's Public Information Center, 801 17th Street, NW, Room 100, Washington, DC 20434 (1-877-275-3342 or (703) 562-2200). 

Home Equity Lending 
Credit Risk Management Guidance 

The Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision and the National Credit Union Administration (collectively, the agencies) have issued the attached guidance to promote sound risk management practices at financial institutions with home equity lending programs.

The agencies have found that in some cases credit risk management practices for home equity lending have not kept pace with the product's rapid growth and eased underwriting standards. Active portfolio management is especially important for financial institutions that project or have already experienced significant growth or concentrations in higher risk products, such as high loan-to-value, limited documentation and no documentation interest-only, and third-party generated loans.

Home equity lending can be conducted in a safe and sound manner with appropriate risk management systems. This guidance outlines the agencies' expectations for sound underwriting standards and effective credit risk management practices for a financial institution's home equity lending activity.

Michael J. Zamorski

Director

Division of Supervision and Consumer Protection