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Financial Institution Letters

Home Equity Lines of Credit
Consumer Protection and Risk Management Considerations When Changing Credit Limits and Suggested Best Practices
FIL-58-2008
June 26, 2008


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

Related Topics:
. 2005 Home Equity Lending: Credit Risk
Management Guidance;
. 1999 Interagency Guidance on High LTV
Residential Real Estate Lending

Attachment:
Regulatory Considerations When Reducing or
Suspending Home Equity Lines of Credit, and
Suggested Best Practices

Contact:
Senior Policy Analyst Mira N. Marshall at
MMarshall@FDIC.gov or (202) 898-3912; or Senior
Examination Specialist Beverlea S. Gardner at
BGardner@FDIC.gov or (202) 898-3640

Printable Format:
FIL-58-2008 - PDF (PDF Help)

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




Last Updated 6/26/2008 communications@fdic.gov