HOME EQUITY LINE OF CREDIT ACCOUNT MANAGEMENT GUIDANCE
A home equity line of credit (HELOC) is a form of revolving credit in which the borrower’s
home serves as collateral. With a HELOC, an applicant will be approved for a specific
amount of credit that can be borrowed.1 Since HELOCs often have long-term or interest-only
payment features, OTS expects associations to actively manage their home equity portfolios.
To do so, associations should:
• Maintain effective risk management systems, as explained in the 2005 Credit Risk
Management Guidance for Home Equity Lending2 (2005 HELOC Guidance), and
• Comply with the OTS real estate lending standards rule3 and related guidance.
The goal of managing credit risk is important from a safety and soundness perspective.
Therefore, associations often structure HELOC plans so that the available credit limit can be
reduced, suspended, or terminated. When taking such actions, associations must follow the
federal laws and rules designed to protect HELOC customers. OTS will review associations’
HELOC account management policies and practices to ensure compliance with these
requirements, which are explained below.
TERMINATING, REDUCING, OR SUSPENDING A HELOC: LEGAL RISKS
Truth in Lending Act (TILA) / Regulation Z
Regulation Z, which implements TILA, sets forth the circumstances under which a HELOC 4
can be terminated, suspended, or reduced.5 Savings associations are responsible under
Regulation Z for timely reinstatement of lines of credit which cease to meet the criteria for
suspension or reduction. These requirements are discussed in the following sections.
Termination of Line / Demand of Full Repayment
With limited exceptions, Regulation Z prohibits creditors from terminating a HELOC and
accelerating repayment of the outstanding balance before the scheduled expiration of the
For more information about HELOC’s, see The Federal Reserve Board, “What You Should Know About