FDIC Warns Banks on Equity Lines of Credit and REOs

It appears that the FDIC is taking exception some bank policies that are becoming more frequent, blanket suspension of home equity lines of credit (HELOC), and management of real estate owned (REO) properties.

In the first, the FDIC is saying that, "under Regulation Z [of the truth in lending laws], lenders can reduce an applicable credit limit only in the event of “significant decline” to the value of an individual property (a “material change” in the borrower’s financial condition — such as the loss of a job — qualifies as well)," so it must be handled on a case by case basis

In the second, the FDIC has issued instructions on proper management of REO properties, because, "some banks are choosing not to pay taxes on certain low-value REO properties in hard-hit neighborhoods, in the hopes that local municipalities will take the property to a tax sale rather than force the lender to carry the property on its books."

Neither of these notes suggest that housing is heading for a recovery.