Tuesday, July 1, 2008

FDIC clarifies HELOC suspension regulation.

Housing Wire today pointed out that the FDIC gave guidance to banks on when they can and cannot suspend HELOCs. I think the money quote is:
The term “significant decline” is not defined within the regulation itself. However, theFederal Reserve Board’s Official Staff Interpretations (Official Interpretations) to this provision of Regulation Z includes an example indicating that, while a “significant decline” will vary according to the circumstances, such a decline has occurred if the unencumbered equity is reduced by 50 percent.

There is anecdotal evidence of lenders pulling HELOCs even on residence with low LTVs because they are trying to preserve liquidity and reduce risk. This guidance will help stop the lenders going overboard at the same time I think it gives them some protection from lawsuits as the number of affected people not falling within their parameters (and thus having a strong claim) is relatively small.

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