We have been reviewing guidance on home equity lending, specifically the Credit Risk Management Guidance for Home Equity Lending and the Residential Real Estate Lending handbook. As a result, we would like to obtain feedback on how other banks have structured their HELOC products and underwriting standards for that product. One question is whether it is required by the regulators (specifically OCC) that the amortization period used when underwriting the HELOC matches the draw period (assuming we do not have a separate repayment period) or can an extended amortization period be used?

Also - if the HELOC rate is adjustable and does not include an interest rate cap (either annual or over the term), is anyone aware of a requirement or best practice to use for underwriting?

Lastly, if there is a draw period (5 years) and a repayment period (15 years), is it best practice to underwrite based on the combined 20 years or would it be best practice to use the 5 year draw period?

Any feedback would be greatly appreciated as we look at making possible changes to our product structure and underwriting standards for HELOCs

You have to have a cap rate.

1026.30—Limitation on rates.

A creditor shall include in any consumer credit contract secured by a dwelling and subject to the Act and this part the maximum interest rate that may be imposed during the term of the obligation when:

(a) In the case of closed-end credit, the annual percentage rate may increase after consummation, or

(b) In the case of open-end credit, the annual percentage rate may increase during the plan.

Thanks for pointing that out. I should clarify - we do have an overall ceiling and floor during the term of the HELOC. There is no limit on the amount the APR can change annually.