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OTS Issues Guidance On HELOC Servicing.(Special Report)
Washington-The Office of Thrift Supervision has issued guidance to OTS-regulated financial institutions about the way they manage home-equity line of credit programs so they are fair to customers, efficiently manage credit risk and comply with the law.
Quoting concerns about the fact that declining home prices in parts of the country "are prompting some institutions to curtail, suspend, or terminate" customers' home-equity lines of credit, OTS has issued guidance intended to ensure such measures comply with federal laws and rules.
The OTS emphasizes that institutions taking these actions "must comply" with regulations "designed to protect customers," including regulations implementing the Truth in Lending Act, Equal Credit Opportunity Act, Fair Housing Act and the OTS nondiscrimination rule.
The guidance recognizes that despite the ongoing market crisis, home-equity lines of credit remain attractive options for many homeowners and lenders.
It stresses, however, that while "sound underwriting and effective risk management systems are essential, associations must employ these strategies in a manner that complies with applicable consumer protection laws and regulations."
"It's a very interesting document. It's a good illustration of the fine line the OTS is trying to walk," said Dan Tobin a partner in the litigation department in the Bethesda, Md., office of Ballard Spahr Andrews & Ingersoll. "I know that lots of banks out there view home-equity lines of credit as some kind of time bomb because the economic stress is hurting people so their ability to repay loans is diminishing, collateral is dropping and home-equity lines almost always are going to be second lien loans and a lot of them have some age on them."
To the extent a home-equity line of credit was done two or three years ago "when money was easier," he explained, it may well be that someone who took a $100,000 HELOC to put a new roof over their head "now has more need to access the credit while their ability to ...
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