Suspending HELOCs to minimize risk

Posted By: Many Hats

Suspending HELOCs to minimize risk - 07/16/08 01:48 PM

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?
Posted By: Dan Persfull

Re: Suspending HELOCs to minimize risk - 07/16/08 02:09 PM

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.
Posted By: Many Hats

Re: Suspending HELOCs to minimize risk - 07/16/08 02:22 PM

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!
Posted By: Ray_

Re: Suspending HELOCs to minimize risk - 07/16/08 02:23 PM

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:....
Posted By: Many Hats

Re: Suspending HELOCs to minimize risk - 07/16/08 02:30 PM

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.
Posted By: Ray_

Re: Suspending HELOCs to minimize risk - 07/16/08 02:39 PM

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
Posted By: Dan Persfull

Re: Suspending HELOCs to minimize risk - 07/16/08 02:55 PM

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