Four federal regulatory agencies and the Conference of State Bank Supervisors Tuesday issued guidance to financial institutions regarding home equity lines of credit nearing their "end-of-draw" periods. The guidance encouraged financial institutions to effectively communicate with borrowers about the pending reset, and provides broad principles for managing HELOC risks.
The regulators, which included the NCUA, said in a release they recognize that financial institutions and borrowers may face challenges as HELOCs near their end-of-draw periods.
Many borrowers will continue to meet their contractual obligation when their loan resets to an amortizing payment or reaches a balloon maturity. However, some may find it difficult to make higher payments or to refinance their existing loans due to changes in their financial circumstances or declines in property values, and could need loan modification.
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