The Washington Post recently reports:

“This summer, both the Federal Deposit Insurance Corp. and the Office of Thrift Supervision issued guidance to the institutions they oversee to remind them that when they change these credit lines, they have to follow the laws. Among the federal laws that protect consumers in these situations are the federal Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act and the Federal Trade Commission Act.”

If your home equity line of credit has been frozen, make sure you know the law. Freezes done without proper cause may be reversed.

See Also:

How Regulation Z Affects Home Equity Line of Credit Borrowers

FDIC Warns Lenders on Freezing HELOCs

Office of Thrift Supervision Warns HELOC Freeze Lenders

Fortunately, HELOC borrowers are legally permitted to back out of a deal if they notify the lender within three business days. Borrowers do not need to have a reason for backing out; they simply need to inform the lender in writing.

The right of rescission is only available if the home equity line of credit is secured by the borrower’s primary residence. In some cases, the rescission period may be waived if the borrower can prove the money is needed for an emergency.

For more information on the HELOC right of rescission see: Home Equity Line of Credit 3-Day Right of Rescission.

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:

Federal Truth in Lending Laws

Office of Thrift Supervision Warns HELOC Freeze Lenders

FDIC Warns Lenders on Freezing HELOCs

Housing Wire reports:

“For loans defined as high-cost, the revamped TILA regulations will ban stated income and related lending practices, as well as forcing lenders to assess repayment ability based on the highest scheduled payment in the first seven years of the loan; the new regulations also put significant limitations on prepayment penalties and require borrowers to escrow for taxes and insurance during the first year of their loan.”

Beginning in late 2009, high cost stated income loans will be illegal. The new legislation defines a “high cost” loan as one that is 3.3% above the average prime rate.
See Also:

Federal Truth in Lending Laws

Good faith estimates are supposed to be a consumer tool. In the ideal world, a borrower could collect several good faith estimates from home equity lenders, compare their rates, and select the best deal. In the real world, it rarely works like this. Lenders regularly tweak their good faith estimates in order to compete with each other. The actual home equity loan rates a borrower gets can be very different from any of the good faith estimates he receives.

HUD’s proposed rules would make good faith estimates much more reliable. The Washington Post reports:

“The information on the proposed good-faith estimate includes the interest rate, total lender charges and total third-party charges. That’s enough to allow a borrower to shop effectively for fixed-rate mortgages. On adjustable-rate mortgages, HUD plans to require additional information on the factors that affect future rate adjustments and is seeking comments on how best to do this.

The fees and charges laid out in the proposed good-faith estimate would no longer depend entirely on the “good faith” of the loan provider. Changes between the numbers shown on the estimate and those contained in the HUD-1 final closing document will be limited.”

The good faith proposal looks like a significant improvement for prospective home equity line of credit borrowers. We’ll keep you updated on the progress of these new rules.

See Also:
HELOC Lender Obligations Under the Truth in Lending Act

HELOC 3-Day Right of Rescission

The Right of Rescission Protects the Consumer

The right of recession is designed to protect the consumer from predatory lending practices and unwise decisions. If you are unable to pay back your HELOC, you may lose your home and be held personally responsible for any unpaid balance. The Right of Rescission makes it possible for you to change your mind about the HELOC without losing any money.

Within the 3-day period, you can choose to rescind your HELOC for any reason. Maybe you felt pressured by the lender. Maybe you didn’t quite understand the terms of the line. Or, perhaps you simply decide that taking out a HELOC isn’t a smart financial decision at this time. It doesn’t matter what you reason is – you don’t even have to explain why you’ve changed your mind. Read more…

This article will help you understand your rights under the Truth in Lending Act. When you interact with a HELOC lender, you will be prepared to make an informed decision and stand up for your legal rights. Read more…