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            2005
   
 Home Equity Lending Credit Risk Management Guidance
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 jleitner@fdic.gov
 Access FDIC Financial Institution Letters (FILs) on the FDIC’s website
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 **Summary:**The federal bank, thrift and credit union regulatory agencies have jointly issued the attached guidance, which promotes sound risk management practices for home equity lines of credit and loans.**Highlights:**The agencies have found that in some cases credit risk management practices for home equity lending have not kept pace with the product's rapid growth and eased underwriting standards.The attached home equity lending guidance outlines the agencies' expectations for sound underwriting standards and effective credit risk management practices for a financial institution's home equity lending activity.The guidance describes sound risk management systems for:Product Development and MarketingOrigination and UnderwritingThird-Party OriginationsCollateral Valuation ManagementAccount ManagementPortfolio ManagementOperations, Servicing, and CollectionsSecondary Market ActivitiesPortfolio Classifications, Allowance for Loan and Lease Losses (ALLL), and CapitalContinuation of FIL-45-2005**Distribution:**FDIC-Supervised Banks (Commercial and Savings)**Suggested Routing:**Chief Executive Officer Compliance Officer Chief Lending Officer**Note:**FDIC Financial Institution Letters (FILs) may be accessed from the FDIC's Web site at www.fdic.gov/news/financial-institution-letters/2005/index.html. To receive FILs electronically, please visit http://www.fdic.gov/about/subscriptions/fil.html. Paper copies of FDIC FILs may be obtained through the FDIC's Public Information Center, 801 17th Street, NW, Room 100, Washington, DC 20434 (1-877-275-3342 or (703) 562-2200).Financial Institution Letters FIL-45-2005 May 24, 2005**Home Equity Lending****Credit Risk Management Guidance**The Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision and the National Credit Union Administration (collectively, the agencies) have issued the attached guidance to promote sound risk management practices at financial institutions with home equity lending programs.The agencies have found that in some cases credit risk management practices for home equity lending have not kept pace with the product's rapid growth and eased underwriting standards. Active portfolio management is especially important for financial institutions that project or have already experienced significant growth or concentrations in higher risk products, such as high loan-to-value, limited documentation and no documentation interest-only, and third-party generated loans.Home equity lending can be conducted in a safe and sound manner with appropriate risk management systems. This guidance outlines the agencies' expectations for sound underwriting standards and effective credit risk management practices for a financial institution's home equity lending activity.Michael J. ZamorskiDirectorDivision of Supervision and Consumer ProtectionAdditional Related Topics:Part 323 AppraisalsInteragency Appraisal and Evaluation GuidelinesPart 365 Real Estate Lending StandardsInteragency Guidance on High LTV Residential Real Estate LendingUniform Retail Credit Classification and Account Management Policy

		FIL-45-2005
Attachments
  Joint Release/Agencies Issue Credit Risk Management Guidance for Home Equity Lending

		FIL-45-2005
Last Updated: May 24, 2005
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