Compliance Issues in Today’s Mortgage Lending Environment

New lending regulations in response to the mortgage crisis will affect community bankers as much as they will other lenders. Here are some potential pitfalls and regulatory changes that you should be aware of.

Reducing Home Equity Lines of Credit (HELOCs). As real estate values decline, many prudent bankers are looking at limiting their exposure by reducing borrowers’ credit lines. Institutions must comply with several laws and regulations when HELOCs are reduced or suspended. For example, Regulation Z expressly permits lenders to restrict additional extensions of credit or reduce the credit limit when the value of the dwelling declines significantly below its appraised value. To use this exception, lenders must determine that a “significant decline” occurred. You need not obtain a full appraisal, but you should have a sound method on which to base your decision, such as an automated valuation model or local tax assessments.

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