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#996490 - 07/16/08 01:48 PM Suspending HELOCs to minimize risk
Many Hats Offline
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Joined: May 2008
Posts: 915
Orlando, FL
We have a number of HELOCs that have little or no balance, and/or have not been used in 12 mo or more, and the borrower may not have have any other relationship with the bank....so we would like to reduce the limit, freeze the line or shut it down completely, so as to reduce our exposure and minimize the amount we have to keep in reserve.

In these cases, none of the conditions of suspension have been met (as defined in our note).

Is there any guidance out there on how to handle this?

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#996549 - 07/16/08 02:09 PM Re: Suspending HELOCs to minimize risk Many Hats
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,416
Bloomington, IN
You cannot suspend or reduce the credit on a HELOC unless one of the specified conditions in the note are present.

And before someone brings up my comments in this thread;

http://www.bankersonline.com/forum/ubbth...true#Post995166

Unsecured open-end credit or open-end credit that does not fall under a HELOC plan do not have the same restrictions as HELOCs.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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#996565 - 07/16/08 02:22 PM Re: Suspending HELOCs to minimize risk Dan Persfull
Many Hats Offline
Platinum Poster
Joined: May 2008
Posts: 915
Orlando, FL
Can you point me in the right direction for the regulatory language on this...I know my boss wants to see exact guidelines on this. He is itching to close these lines and asked that it be done TODAY....I've got to stop him!

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#996566 - 07/16/08 02:23 PM Re: Suspending HELOCs to minimize risk Many Hats
Ray_ Offline
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Joined: Aug 2006
Posts: 879
Dallas, TX
It should be stated in the note itself, no? Also in Reg Z.

http://www.bankersonline.com/regs/226/226-5b.html

(f) Limitations on home equity plans. No creditor may, by contract or otherwise:....

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#996577 - 07/16/08 02:30 PM Re: Suspending HELOCs to minimize risk Ray_
Many Hats Offline
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Joined: May 2008
Posts: 915
Orlando, FL
The conditions of suspension are listed in the Note, but he still wants to shut them down.

If we pull credit reports on these borrowers and determin that their scores have dropped significantly, can we use that as a reason......bank reasonably believes the borrowers ability to pay is deteriorated??

I don't think so, but I know he will ask that.

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#996597 - 07/16/08 02:39 PM Re: Suspending HELOCs to minimize risk Many Hats
Ray_ Offline
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Joined: Aug 2006
Posts: 879
Dallas, TX
I found this in an article.

Reg. Z provides other exceptions, including one for a creditor that “reasonably believes” the consumer will be unable to fulfill the HELOC repayment obligations because of a “material change” in financial circumstances. Banks that use this exception should have a factual basis that they apply consistently to avoid the risk of committing prohibited discrimination or an unfair practice.

http://www.prattsletter.com/cms/item/4850

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#996621 - 07/16/08 02:55 PM Re: Suspending HELOCs to minimize risk Ray_
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 46,416
Bloomington, IN
Here's a recent FDIC release:

http://www.fdic.gov/news/news/financial/2008/fil08058.html

Be sure to click the link in the release to take you here:

http://www.fdic.gov/news/news/financial/2008/fil08058a.html

_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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