How Regulation Z Affects Home Equity Line of Credit Borrowers
Posted on 31 August 2008 by Jamie Beck
Last week, I posted about the letter from the Office of Thrift Supervision warning HELOC lenders to follow government regulations.
Hopefully, this instruction will encourage banks to avoid freezing individual home equity lines of credit without considering a borrower’s unique circumstance (for example, a home with a high value in an area that is generally declining).
IndyStar recently published an article that details some of the most important laws lenders are being asked to follow. One law borrowers may be particularly interested in is “Regulation Z.”
Here’s how they explain it:
”…With limited exceptions, Regulation Z of the Truth in Lending Act prohibits creditors from terminating a home equity line of credit and then accelerating repayment of the outstanding balance. Exceptions include situations in which the borrower fraudulently obtained the loan or failed to repay according to its terms.
Additionally, under Regulation Z, a lender can’t just reduce or suspend access to a line of credit without cause, said Montrice Godard Yakimov, OTS managing director for compliance and consumer protection.
A suspension or reduction of a home equity line must be based on an assessment of the value of “the dwelling that secures the plan,” the OTS said in its guidance. Consequently, a financial institution would violate the law if it attempted to yank credit limits of all home equity credit line accounts in a geographic area where real estate values are generally declining.”
If government regulators are willing to enforce these laws, some borrowers may be protected from unnecessary HELOC freezes.
See Also:
Office of Thrift Supervision Warns HELOC Freeze Lenders
FDIC Warns Lenders on Freezing HELOCs
Tags | FDIC, Heloc, heloc freeze, home equity line of credit, mortgage crisis, Truth in Lending Act
September 30th, 2008 at 8:51 am
Right, as if we believe that. All the lender has to do is say they ran their computer model for your city and BING! Frozen. We got a letter and it stated it was based on the house we bought. Of course forgetting the $30 remodel inside or the $30,000 pool added (which does have value here). They just slogged everyone together and ONLY if WE want to pay for a new appraisal can we get it unfrozen. Personally I think the government should require that lenders perform an appraisal on any house in which the owner disputes the freeze.