What the HELOC is going on here?
by. Henry Meier
There are some things that just make no sense to me. For example, why can’t a country of 270 million sports loving citizens, many of whom grew up playing soccer, find 23 people good enough to make us one of the best soccer teams in the world? I’m sorry, there’s only so much pride I can take in beating Ghana.
Another mystery of more practical concern is trying to figure out how great a risk resetting Home Equity Lines of Credit (HELOC) pose to financial institutions in particular and the economy as a whole. Since the start of the Great Recession, pundits have been predicting a second wave foreclosure crisis as the draw periods on HELOCS come to an end. With so many people still struggling and interest rates likely to rise, it seems logical to assume that problems are on the horizon. But, so far, the worst case scenarios haven’t materialized.
Nevertheless, if I was a regulator, I would be a little nervous, which is why I’m not surprised that a joint guidance was issued yesterday instructing financial institutions, including credit unions, to take steps to mitigate against the risks posed by HELOCS which are coming to the end of their draw periods. Among other things, examiners will generally be reviewing how cognizant your credit union is of its HELOC portfolio and the risks posed by pending repayment periods. The amount of scrutiny will vary depending on your credit union’s size, but examiners will be reviewing, among other things, if your credit union is:
- Developing a clear picture of scheduled end-of-draw period exposures;
- Ensuring a full understanding of end-of-draw contract provisions;
- Evaluating near-term risks;
- Contacting borrowers through outreach programs;