Skip to main content
U.S. flag
An official website of the United States government
Dot gov
The .gov means it’s official.
Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you’re on a federal government site.
Https
The site is secure.
The https:// ensures that you are connecting to the official website and that any information you provide is encrypted and transmitted securely.
Financial Institution Letter
Home Equity Lines of Credit Consumer Protection and Risk Management Considerations When Changing Credit Limits and Suggested Best Practices
June 26, 2008
Notes
 
Summary: The FDIC is issuing the attached supervisory guidance to remind FDIC-supervised financial institutions that if, for risk management purposes, they decide to reduce or suspend home equity lines of credit, certain legal requirements designed to protect consumers must be followed. In addition, the FDIC urges institutions to work with borrowers to minimize hardships that may result from such reductions or suspensions.

Highlights:

  • In response to falling home prices and borrower financial difficulties, some financial institutions have reduced or suspended home equity lines of credit (HELOCs) and other institutions may be considering doing this.
  • Such actions may be prudent and appropriate ways for institutions to manage credit risk, as articulated more fully in existing supervisory guidance. However, certain legal requirements designed to protect consumers must be followed.
  • Regulation Z, implementing the Truth in Lending Act, permits lenders to reduce the credit limit or suspend further extensions of credit if the value of the dwelling securing the loan declines significantly, or if a consumer is likely to be unable to meet his or her obligations as a result of a material change in his or her financial circumstances.
  • Compliance with Regulation B and the Fair Housing Act requires lenders to calculate revised property values and determine borrower financial circumstances using consistently applied fact- based methods, and implement any resulting limitations without regard to prohibited factors.
  • The FDIC urges institutions to work with existing borrowers, when possible, to mitigate financial hardships arising from HELOC reductions or suspensions.

Distribution:
FDIC-Supervised Banks (Commercial and Savings)

Suggested Routing:
Chief Executive Officer
Chief Loan Officer
Chief Compliance Officer
Chief Financial Officer

Note:
FDIC financial institution letters (FILs) may be accessed from the FDIC's Web site at www.fdic.gov/news/financial-institution-letters/2008/index.html .

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

Paper copies of FILs may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275- 3342 or 703-562-2200).



Additional Related Topics:

  • . 2005 Home Equity Lending: Credit Risk
  • Management Guidance;
  • . 1999 Interagency Guidance on High LTV
  • Residential Real Estate Lending
FIL-58-2008
Attachments
Regulatory Considerations When Reducing or Suspending Home Equity Lines of Credit, and Suggested Best Practices
Last Updated: June 26, 2008