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Joint Press Release

Office of the Comptroller of the Currency
Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Office of Thrift Supervision
National Credit Union Administration

Addendum to Credit Risk Management Guidance for Home Equity Lending
This addendum to the May 2005 Interagency Credit Risk Management Guidance for Home
Equity Lending (interagency HE lending guidance) provides additional guidance for
managing risks associated with open-end home equity lines of credit (HELOCs) that contain
interest-only features. While HELOCs with these features may provide flexibility for
consumers, the Agencies are concerned that consumers may not fully understand the
product terms and associated risks. This addendum provides guidance addressing the timing
and content of communications with consumers obtaining interest- only HELOCs. These
consumer protection recommendations are similar to the guidance contained in the
Interagency Guidance on Nontraditional Mortgage Product Risks (September 2006) for
closed-end home purchase, refinance, and home equity mortgage products.
Product Development and Marketing
When promoting or describing HELOCs that permit interest-only payments, institutions
should provide consumers with information that is designed to help them make informed
decisions regarding product selection and use. Meeting this objective requires appropriate
attention to the timing, content, and clarity of information presented to consumers.
Communications with consumers, including advertisements, oral statements, promotional
materials, and periodic statements, should provide clear and balanced information about the
relative benefits and risks of HELOCs with interest-only features.1 This includes
information about the risk of increased future payment obligations. Information about
potential increases in payment obligations should address, among other things,
circumstances in which interest rates reach a contractual limit.
If applicable, these materials should also alert the consumer to any prepayment penalty, 2
and the need to seek additional information on the amount of any penalty. Consumers
should also be informed of any premium that may be charged for a reduced documentation
This information should be provided in a timely manner, to assist the consumer in the
product selection process. Clear and balanced information should be provided at the time a
consumer is shopping for a loan, not just when an application form is provided or at
consummation. For example, this information could be provided when a consumer inquires
about a home equity product and receives information about products with interest-only
features, or when the institution provides the consumer with marketing materials for such
products. 3

1. The Agencies are concerned about increased future payment obligations due to interest
rate increases and the end of a non-amortizing payment period, not payment increases due to
additional draws on the line of credit. Return to text
2.For purposes of this guidance, a prepayment penalty for a HELOC is a fee that will be
imposed if the borrower pays off the balance and terminates the account in advance of the
contractual end date. Return to text
3. Institutions also should strive to: (1) focus on information important to consumer decision
making; (2) highlight key information so that it will be noticed; (3) employ a user-friendly
and readily navigable format for presenting the information; and (4) use plain language,
with concrete and realistic examples. Comparative tables and information describing key
features of available loan products, including reduced documentation programs, also may be
useful for consumers. Return to text