| WASHINGTON, July 1
WASHINGTON, July 1 U.S. regulators on Tuesday
urged banks to work with clients to avoid defaults on hundreds
of billions of dollars of home equity lines of credit taken out
during the housing bubble that will come due in the next several
The regulators also pledged to thoroughly check banks'
programs to control the risk arising from the lines of credit,
"When borrowers experience financial difficulties, financial
institutions and borrowers generally find it beneficial to work
together to avoid unnecessary defaults," five regulators said in
a joint statement.
When HELOCs go bad, banks can lose an eye-popping 90 cents
on the dollar, because the line of credit is usually a second
mortgage. If the bank forecloses, most of the proceeds of the
sale pay off the main mortgage, leaving little for the home
More than $221 billion of these loans at the largest banks
will reach their 10-year anniversary over the next four years -
or 40 percent of the HELOCs now outstanding - at which point
borrowers usually must start paying down the principal loan as
well as accrued interest.
The number of borrowers missing payments around the 10-year
point can double in their eleventh year, data from consumer
credit agency Equifax shows.
The agencies laid out how banks should oversee their HELOC
portfolios nearing the benchmark, how to deal with clients
unable to pay and how to report financials.
The agencies are the Office of the Comptroller of the
Currency, the Federal Reserve, the Federal Deposit Insurance
Corp, the National Credit Union Administration and the
Conference of State Bank Supervisors.
If economic growth picks up, and home prices rise,
borrowers may be able to refinance their main mortgage and their
HELOC as a single new fixed-rate loan. But the OCC has been
warning banks about the risk of these products since the spring
of 2012, pressing them to minimize risk.
(Reporting by Douwe Miedema; Editing by Steve Orlofsky)