The Consumer Financial Protection Bureau (CFPB) proposed Friday that the reporting requirements for banks and credit unions regarding home equity lines of credit (HELOC) should be eased in regards to reporting. Come January 2018, the new rule will be that a bank must report HELOCs if they made more than 500 loans through calendar years 2018 and 2019 versus the currently standing 100. This change would be temporary, allowing the CFPB to consider whether to make the adjustment permanent.
“Home-equity lines of credit worsened the foreclosure crisis that swept the country in 2008 and 2009,” said CFPB Director Richard Cordray. “We need to keep track of the responsible use of these loans for consumers, but after hearing from community banks and credit unions we want to reconsider whether that goal can be achieved with a higher reporting threshold.”
Originally enacted in 1975, the Home Mortgage Disclosure Act was updated in 2015 to help financial institutions in their quality of reporting. Of the updates taking effect in January 2018, the most significant thus far requires lenders to collect, report, and disclose data on certain dwelling-secured open-end lines of credit, including HELOCs.
Because of the nature of HELOCs, the CFPB believes it’s important to collect data on them. Just like a mortgage, homeowners can default on a HELOC and lose their home. The foreclosure crisis in the late 2000s had much to do with the overleveraging and defaulting due to these products. The CFPB is working to clear the blind spot present at that time when this lending wasn’t visible to HMDA data or any other publicly available data source.
According to the CFPB, they have heard increasing concerns from community banks and credit unions on the challenges and costs associated with reporting open-end lending at the 100-loan threshold. Both the costs and the amount of institutions reporting open-end lines of credit are turning out to be more than the CFPB originally estimated.
You can see the proposed rule here.