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OCC Bulletin 2005-22 | May 16, 2005

Home Equity Lending: Credit Risk Management Guidance


Chief Executive Officers of National Banks, Department and Division Heads, and All Examining Personnel

The guidance attached to this bulletin continues to apply to federal savings associations.

The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the National Credit Union Administration have jointly issued the attached "Credit Risk Management Guidance for Home Equity Lending." The guidance promotes sound credit risk management practices for institutions engaged in home equity lending (both home equity lines of credit and closed-end home equity loans).

Home equity lending, particularly home equity lines of credit, has experienced rapid growth in recent years, spurred by appreciation of housing values. In many instances, credit risk management practices have not kept pace with the product’s growth and the increased risk due to relaxed structures and liberalized underwriting. The guidance describes regulatory expectations for:

  • Product Development and Marketing
  • Origination and Underwriting
  • Third-Party Originations
  • Collateral Valuation Management
  • Account Management
  • Portfolio Management
  • Operations, Servicing, and Collections
  • Secondary Market Activities
  • Portfolio Classifications, Allowance for Loan and Lease Losses (ALLL), and Capital 

This guidance is applicable to all financial institutions engaged in home equity lending. However, sound credit risk management programs are especially important for institutions that project or have already experienced significant growth or concentrations, and for institutions with higher-risk products such as high loan-to-value, "low doc" or "no doc," interest-only, or third-party generated loans or lines.

For further information, please contact the Credit Risk Division at (202) 649-6670.

Emory Wayne Rushton
Senior Deputy Comptroller and Chief National Bank Examiner

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