Compliance Blog

Jul 07, 2014
Categories: Home-Secured Lending

Interagency HELOC Guidance Released; Free Kick

Written by Ricardo Piñeres, Regulatory Compliance Counsel

Interagency HELOC Guidance Released.  On July 1, NCUA (jointly with OCC, the Federal Reserve, FDIC, and the Conference of State Bank Supervisors) released guidance regarding home equity lines of credit (HELOCs) nearing their “end-of-draw” periods.  The guidance is intended to help financial institutions fully understand the potential risks associated with HELOCs that are approaching the transition from their draw periods to full repayment.  The guidance states:

“As HELOCs transition from their draw periods to full repayment, many borrowers will have the financial capacity to pay as agreed.  Some borrowers, however, may have difficulty meeting higher payments resulting from principal amortization or interest rate reset, or renewing existing loans due to changes in their financial circumstances or declines in property values.

"When borrowers experience financial difficulties, financial institutions and borrowers generally find it beneficial to work together to avoid unnecessary defaults.  As HELOC draw periods approach expiration, lenders should communicate clearly and effectively with borrowers and prudently manage exposures in a disciplined manner.”

The guidance states that “[a]s part of the supervisory process, examiners will review financial institutions’ end-of-draw risk management programs for provisions that address five risk management principles.”  These principles are:

  • Prudent underwriting for renewals, extensions, and rewrites;
  • Compliance with pertinent existing guidance;
  • Use of well-structured and sustainable modification terms;
  • Appropriate accounting, reporting, and disclosure of troubled debt restructurings; and
  • Appropriate segmentation and analysis of end-of-draw exposure in allowance for loan and lease losses (ALLL) estimation processes.

The guidance goes on to provide guidelines for best practices with regards to “policies and procedures for managing HELOCs nearing their end-of-draw periods that are commensurate with the size and complexity of the portfolio.”  These risk management best practices include:

  • Developing a clear picture of scheduled end-of-draw period exposures;
  • Ensuring a full understanding of end-of-draw contract provisions;
  • Evaluating near-term risks;
  • Contacting borrowers through outreach programs;
  • Ensuring that refinancing, renewal, workout, and modification programs are consistent with regulatory guidance and expectations;
  • Establishing clear internal guidelines, criteria, and processes for end-of-draw actions and alternatives (renewals, extensions, and modifications);
  • Providing practical information to higher-risk borrowers;
  • Establishing end-of-draw reporting that tracks actions taken and subsequent performance;
  • Documenting the link between ALLL methodologies and end-of-draw performance; and
  • Ensuring that control systems provide adequate scope and coverage of the full end-of-draw period exposure.

As is stated in several places in the document, the guidance should be applied in a manner commensurate with the size and risk characteristics of a financial institution’s HELOC portfolio.  Therefore, NCUA, through their examination process, may look for how credit unions have applied some or all portions of the guidance.


Free Kick.  And then there were four.  After a riveting 60 matches, we are down to the final week of the World Cup.  Left standing are Brasil, Germany, Argentina, and the Netherlands.  All four have had their moments of brilliance, but they have also had moments of true concern in this tournament.  There are no doubt several plot twists left over the final four games of this tournament, but what I do know right now is that the eventual champion will have earned it.  This has been a tournament full of parity, surprises, and great play.  But it also has been a tournament that has seen controversy and injury strike.  In the end, though, this tournament has been a celebration of the beautiful game, and it will be sad to say goodbye to Brasil 2014 this Sunday afternoon.

As a very proud Colombian-American, this tournament has also filled me with much joy and pride.  Both the U.S. and Colombian teams acquitted themselves superbly throughout the course of this tournament.  It was sad to see them both bid farewell to this celebration of football this past week, but I will be comforted with amazing memories, especially the stalwart goalkeeping displayed by Tim Howard and the simply sublime playmaking abilities of James Rodriguez.  Both teams have bright futures ahead, and I look forward to seeing them, hopefully, take the next step over the next four years and in Russia in 2018!

Now, to my Starting XI (in a 4-4-2 formation) of the tournament:

Keeper – Tim Howard (USA);

Backs – Daley Blind (NED), Thiago Silva (BRA), David Luiz (BRA), and Serge Aurier (CIV);

Midfielders – Philipp Lahm (GER), James Rodriguez (COL), Lionel Messi (ARG), and Xherdan Shaqiri (SUI); and

Forwards – Arjen Robben (NED) and Thomas Muller (GER).