Washington State Department of Financial Institutions

DCU Bulletin
Guidance on Home Equity Lines of Credit

September 11, 2008

NO: B-08-11

The Director of Credit Unions advises credit unions to review the Guidance on Home Equity Lines of Credit (HELOCs) issued on August 26, 2008 by the Office of Thrift Supervision (OTS). Credit unions have similar safety/soundness and compliance issues as savings associations. You view it at http://files.ots.treas.gov/481121.pdf.

OTS’s cover letter to the guidance states the following:

Declining home prices in parts of the country are prompting some institutions to curtail, suspend, or terminate customers’ home equity line of credit. Today’s guidance emphasizes that institutions taking such actions must comply with federal laws and rules designed to protect customers, including regulations implementing the Truth in Lending Act, Equal Credit Opportunity Act, Fair Housing Act and the OTS nondiscrimination rule.

“A home equity line of credit is an attractive product for many homeowners and lenders,” the guidance said. “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.”

While Division of Credit Unions has not received consumer complaints about credit unions restructuring HELOCs, Linda Jekel, Director of Credit Unions, finds the OTS guidance as good direction for credit unions and examiners. For credit unions, also see NCUA Letter 05-CU-07 “Managing Risks Associated with Home Equity Lending” published in May 2005. Credit unions should obtain legal advice regarding nondiscrimination practices, including what is prohibited in advertising (see 12 C.F.R. Part 741.211 and Part 740.2).

Please contact Linda Jekel, Director of Credit Unions at (360) 902-8778 or LJekel@dfi.wa.gov, if you have any questions.

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