HELOC End-of-Draw Guidance 

The NCUA, along with other regulatory agencies, issued interagency guidance on home equity lines of credit (HELOC) nearing the end of their draw periods. The guidance describes core operating principles that should govern oversight of these products and components of a risk-management approach that considers the potential exposures.

The guidance addresses the review that examiners will conduct on credit unions’ risk management programs for end-of-draw provisions. Additionally, the guidance addresses the need for management to implement policies and procedures for managing HELOCs nearing the end of draw periods, in line with the size and complexity of their portfolio. The prudent risk management expectations listed in the guidance includes:

1.     Developing a clear picture of scheduled end-of-draw period exposures

2.     Ensuring a full understanding of end-of-draw contract provisions

3.     Evaluating near-term risks

4.     Contacting borrowers through outreach programs

5.     Ensuring that refinancing, renewal, workout and modification programs are consistent with regulatory guidance and expectations, including consumer protection laws and regulations

6.     Establishing clear internal guidelines, criteria and processes for end-of-draw actions and alternatives (renewals, extensions, and modifications)

7.     Providing practical information to higher-risk borrowers

8.     Establishing end-of-draw reporting that tracks actions taken and subsequent performance

9.     Documenting the link between allowance for loan and lease losses – ALLL – methodologies and end-of-draw performance

10. Ensuring that control systems provide adequate scope and coverage of the full end-of-day draw period exposure

Submissions to Monitor may be emailed. Bryan Laviolette is the editor of Monitor. Contact him by email or call (800) 262-6285, ext. 233. The newsletter of the Michigan Credit Union League is published Monday mornings or Tuesday mornings when Monday is a holiday. There is no Monitor the week after Christmas and the week after the Annual Convention and Exposition. The MCUL reserves the right to edit submissions for clarity and space.
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