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#1095560 - 12/11/08 02:53 PM HELOC Renewals - >100% CLTV
Many Hats Offline
Platinum Poster
Joined: May 2008
Posts: 915
Orlando, FL
We have a number of HELOCs that are maturing and what we are finding is that due to declining values, the CLTV exceeds 100% (typically >100% but less than 125%). These borrowers have paid as agreed and have very good scores, verifiable income, etc.

Since there's little chance of these borrowers being able to sell or refinance in the current market to pay us off, we have been closing them down and doing a new HELOAN instead to promote principal reduction (vs. an interest only HELOC and never paying down the principal).

Since the CLTV exceeds our Supervisory LTV limits, we have to report these as Reg H exceptions.

A few questions:

1) How is everyone else handling this and if you have received any guidance from your regulator, I'd love to hear what they think about it?

2) Do you have to keep additional reserves? Are there any other accounting issues we need to consider?

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Lending Compliance
#1095585 - 12/11/08 03:22 PM Re: HELOC Renewals - >100% CLTV Many Hats
rlcarey Offline
10K Club
Joined: Jul 2001
Posts: 77,576
Galveston, TX
1) If the borrowers continue to show the ability to repay, what choice do you really have? The only other option is to demand payment in full and force them into foreclosure in which you would lose. As long as there is a reasonable basis to assume that repayment will happen, the regulators are not going to say a thing.

2) Additional reserves will be dependent on your portfolio performance.
The opinions expressed here should not be construed to be those of my employer:

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#1099721 - 12/18/08 07:09 PM Re: HELOC Renewals - >100% CLTV Many Hats
Frodo2 Offline
100 Club
Joined: Aug 2004
Posts: 168
If these are being refinanced internally with no cash out it seems to me that you would be able to use the following exclusion to not have to carry them as in excess of the supervisory LTV limits:

Excluded Transactions

The agencies also recognize that there are a number of lending situations in which other factors significantly outweigh the need to apply the supervisory loan-to-value limits. These include:

Loans that are renewed, refinanced, or restructured without the advancement of new funds or an increase in the line of credit (except for reasonable closing costs), or loans that are renewed, refinanced, or restructured in connection with a workout situation, either with or without the advancement of new funds, where consistent with safe and sound banking practices and part of a clearly defined and well-documented program to achieve orderly liquidation of the debt, reduce risk of loss, or maximize recovery on the loan.
Not a legal opinion, just my personal opinion.

"A nickel isn't worth a dime today."- Yogi Berra

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