This past September, the Office of the Comptroller of the Currency (OCC)deputy comptroller for credit and market risk identified home equity lines of credit (HELOCs) as a major point of concern for the organization, citing this topic as an area of focus for the coming year. According to the OCC, financial institutions are at varying stages of preparedness for the problems that may occur when a bulk of their HELOCs begin amortizing, and there is much work that still should be done to quantify and address the risks of delinquencies and losses.
As myriad HELOCs start to amortize in 2014, mortgage banks and lenders must study the situation carefully. If your organization has a wealth of HELOCs set to amortize, what key considerations should you keep in mind?
Although the anticipated HELOC issues have become a hot topic recently, the origin of these products stems from another era in banking history. Before the financial crisis (i.e., between 2004 and 2007), many banks aggressively originated and sold HELOCs. According to Moody’s Investors Service, there was an outstanding balance of $552 billion worth of HELOCs in the entire financial system at the end of this past first quarter, with $486 billion of credit available to be drawn down.
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