Home Equity line of Credit Payment

Home-equity credit line for loan payment

Banking supervisors are issuing guidelines for Holecs that are close to the end of their drawing period. At the beginning of July, the regulatory authorities of the Bundesbank and the Conference of State Banking Authorities published guidelines for home equity credit facilities ("HELOC"), which are approaching the end of their drawing time. A HELOC usually comprises two periods: a drawing cycle in which the debtor has exposure to unutilised credit line balances and only interest is paid, followed by a payback cycle in which a ballon payment or incremental payment is made.

Prudential guidelines recalled to regulators the main elements of HELOC's approach to riskmanagement as the drawing phase for Holecs draws to a close. As an example, a bank should: not prolong drawing deadlines, change credit or set redemption conditions without thoroughly reviewing the borrowers; use credit processing programmes where possible, but only if they are adapted to the borrowers' specific circumstances, and appropriate rescheduling of disrupted credit should be identified; take into account the end of drawing season related exposures, such as the'payment shock' of the borrowers due to higher maturities during the redemption season, when assessing their provision for credit and rentals.

The guidelines also described a number of guidelines that should be followed by each bank in the implementation of these guidelines, including: a correct definition of the end of the drawing season exposure and the riskier parts of the portfolios; an assessment of anticipated disbursements, defaults and other elements that alter the level of exposure; a full comprehension of the HELOCs' contract requirements (such as notices, payment sums, interest charges and amortisation terms) and the need to ensure that the payment settlement and service system is properly managed and maintained;

Communicate with borrower through well-trained relationship managers in a timely manner before the end of the drawdown period, describing the possibilities for changes to high-risk borrower; follow up on the types of action taken at the end of the drawdown period and subsequently settlement and frequently distributing these to all staff members concerned; adequate staff ing and staff to manage all activity within the HELOC portfolios.

These guidelines on Home Equity Lines of Credit Almosting Their End-of-Draw Periods, Diese Leitlinien finden Sie unter Interagency Guidance on Home Equity Lines of Credit Undertakings.

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