July 01, 2014

Guidance issued on HELOC end-of-draw periods

July 2, 2014 – New guidance from federal regulators to financial institutions regarding home equity lines of credit nearing their "end-of-draw" periods encourages institutions to communicate with their borrowers and provides direction for managing associated risks.

The agencies – NCUA, the Federal Reserve, FDIC and Office of the Comptroller of the Currency as well as the Conference of State Bank Supervisors – are anticipating that some borrowers and financial institutions may face challenges when the repayment period for HELOC principal begins.

The guidance addresses "core operating principles that should govern management's oversight of HELOCs nearing their end-of-draw periods." It also describes "components of a risk management approach that promotes an understanding of potential exposures and consistent, effective responses to HELOC borrowers who may be unable to meet contractual obligations."

The proper accounting and reporting procedures for HELOCs nearing their end-of-draw periods are also discussed in the guidance.