We want to allow HELOC customers to defer 3 payments of interest during this crisis. Once that period ends, our system will bill for the entire amount deferred plus the amount currently due, negating the point of trying to help the customer. I know it is going to depend on what our system can do, which we are finding out but we have considered allowing them to advance the HELOC to pay the interest or let them pay the interest back over an extended period, possibly 12 months.

Does anyone else have this situation? Just looking for ideas on how best to help the customer. Thanks

I would love to hear some guidance and recommendations on this. We have the same issues.
P.S. We are a small community bank and do not have a "bank attorney" to guide us on these kind of matters. They are only there for corporate matters. They wouldn't have a clue about compliance or operational issues anyway.
Hoping someone can help with this question.

Yes, please. Have some lending units at subsidiaries wanting to defer 3 months' interest payments and thinking that they can just clean up afterward. If they are over their HELOC limit, they are in default. Given that a HELOC is basically a credit card, there are limited options. And the people already at their limit are the first ones to ask for deferral.

And the Credit Bureau reporting: report them ?what? for 3 months?

You need to visiting with legal counsel. But have them execute a deferral agreement. Set the next payment due date into your servicing system so you don't report them as past due, capitalize the interest at the end of the deferment period and begin again. The bill passed by Congress basically suspends all TDR and GAAP accounting rules at the discretion of the lender and the regulators can't override that decision. Or call the loan, it is up to the lender, but that might not be the best option. Whatever you decide, do it uniformly.

By capitalize the interest, you mean add it in to the principal, correct? How do we handle that if the customer has maxed out the line already? Would that be covered in whatever deferral agreement we draw up?

Also, on a separate, but related, note: can we allow a customer to advance on a HELOC to make a payment (assuming they have available credit)? One credit person at my bank suggested that this would be easier than doing a deferral, but it feels squishy to me.

Yes - you would add the accrued interest to principal, if you so choose to. You could always arrange to collect it using other methods (over X months for example). A lot of it is going to depend on what can be accomplished via your loan servicing system It is going to be a business decision as to what to do with customers that are over their limit - most notes would require immediate payment of any over limit amounts.

There is nothing that prevents someone from drawing on a HELOC and making a payment unless it is prohibited by your loan agreement.

I have a question- if we put the loan into forbearance- is there any compliance issues with sending the statement showing no payment but the account accrues interest? Or do we not send out statements. Thanks

If we allow capitalization of interest during the pandemic, how does that impact the amount of flood insurance we would have to require, if applicable?

If the loan amount increases and the loan amount is the lesser of the three measures for the amount of flood insurance than it would follow that insurance would need to be increase to cover the increased loan amount.