An Office of Thrift Supervision (OTS) memo (download here) advises home equity line of credit (HELOC) lenders they are not subject to new billing and payment grace period regulations imposed on credit card lenders. The recently enacted Credit Card Accountability Responsibility and Disclosure (Credit CARD) Act of 2009 amends Truth in Lending Act (TILA) provisions that require credit card companies to provide 21 days between when a bill is sent and when the payment is due. Also, if a credit card company offers a grace period for borrowers, it must now be a 21-day grace period. OTS said while HELOC lenders are considered open end creditors like credit card companies, they are excluded from the billing and grace period provisions outlined in the Credit CARD Act. However, an OTS rule prohibits a HELOC lender from assessing a late fee if a borrower’s payment is received within 15 days after it’s due. Many lenders require HELOC payments on the 15th of the month, but defer charging a late fee until the 30th of the month. The memo also advises lenders of higher priced mortgages that include a balloon payment at the end of the loan that they don’t have to evaluate a borrower’s ability to repay the balloon payment, if the loan term is seven years or longer. While Regulation Z requires lenders to evaluate a borrower’s ability to repay the monthly payment by following certain procedures, including income verification, they do not have to consider the borrower’s ability to repay the balloon payment, if the loan term is seven years or longer. For shorter-term loans, lenders are required to consider a borrower’s ability to repay the balloon payment and OTS encouraged lenders to practice prudent underwriting standards. Write to Austin Kilgore.
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