Who Regulates Home Equity Lenders?

Learn the key home equity lending regulations that affect consumers

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Home equity can be a tool for consumers in need of cash, whether it’s used to pay off high-interest debt, make home repairs, or tackle medical bills. And in a market where home values are shooting up—median single-family existing-home prices rose 15.7% from May 2021 to May 2022, according to the National Association of Realtors—many homeowners have the benefit of increased equity.

Borrowing against your home can be risky, however, so it may be comforting to know that there are a number of regulators overseeing the lending industry to ensure that the process is transparent and aboveboard—and that you’re not overextending yourself.

Learn more about home equity loan regulators and their roles, as well as the key laws and rules that keep consumers protected.

Key Takeaways

  • Home equity loan regulators help protect consumers and the banking industry by enforcing transparency, fairness, and non-discriminatory practices.
  • The main U.S. home equity loan regulators are the Consumer Financial Protection Bureau (CFPB), the Office of Comptroller of the Currency (OCC), and the Federal Reserve System.
  • Key laws and regulations protecting consumers include the Fair Housing Act, the Truth in Lending Act, the Fair Credit Reporting Act, and the Equal Credit Opportunity Act.

What Are Home Equity Loans and HELOCs?

Home equity lending allows homeowners to borrow from the equity, or the amount of their home they own. So if you have a home worth $400,000, for example, and your mortgage balance is $200,000, that means you have 50% equity in the home. Lenders typically allow borrowers to tap into 80% to 85% of the home’s value.

Homeowners have two different ways to borrow from their home equity: a home equity loan and a home equity line of credit (HELOC). A home equity loan is a second mortgage, meaning you’ll borrow a lump sum, then make fixed payments on that loan each month. A HELOC is a line of revolving credit that you can keep using as needed for a period of time (usually 10 years).

Here’s a quick breakdown of home equity loans vs. HELOCs:

Home Equity Loan HELOC
Lump-sum loan Revolving credit line (sort of like a credit card) that you can keep borrowing from and paying back for the length of the draw period
Fixed rate Variable rate
Fixed payments over the life of the loan Can make interest-only payments during the draw period, then you’ll enter repayment period to pay both principal and interest

Entities That Regulate Home Equity Lending

“The mortgage industry is one of the most regulated industries,” Vikram Gupta, head of home equity for PNC Bank, said in a phone call with The Balance. “Consumers are highly protected, and there is a lot of oversight.”

Gupta called the following regulatory bodies “the Big Three”:

Consumer Financial Protection Board (CFPB)

The CFPB calls itself “a U.S. government agency dedicated to making sure you are treated fairly by banks, lenders, and other financial institutions.” It was established in 2011 as a response to the mortgage industry crisis in 2007-2008 and the resulting recession.

“Their mandate is to protect the customer” from any abusive, predatory, discriminatory, or shady tactics being used by lenders, Gupta said. As such, the CFPB, along with other regulators, has the ability to oversee HELOCs. As part of the CFPB’s consumer education mandate, the agency also provides online information about HELOCs, including a booklet.

Office of the Comptroller of the Currency (OCC)

The OCC is an independent bureau of the U.S. Department of the Treasury that charters, regulates, and supervises all national banks, federal savings associations, and federal branches and agencies of foreign banks. In other words, Gupta said, it regulates the industry from the banking perspective. “Is the bank going to go under? Is the bank doing anything that will create harm to the banking system?, etc.”

The OCC also ensures that the banks it supervises operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations.

The Federal Reserve System

Similar to the OCC, the Fed has supervisory and regulatory authority over many banks, and aims to ensure the stability and soundness of the banking system. It also makes sure banks remain in compliance with laws and regulations.

There are some other regulators and agencies that issue guidance or oversee home equity lending practices, including the Federal Trade Commission (FTC), the National Credit Union Administration (NCUA), and the Federal Deposit Insurance Corp. (FDIC), among others.

While each regulator may be focused on slightly different aspects of home equity lending, they’re all dedicated to ensuring that lenders are operating ethically and following the regulations that protect both consumers and the integrity of the banking system.

How Regulators Work

Gupta said each regulator has its own system and process, but they all perform routine examinations and audits to make sure banking institutions are in compliance. “All banks have large teams whose job it is to be the primary interface to government regulators,” Gupta said.

So, for example, the CFPB may do a deep dive on sales practices by asking for a sample of loans to make sure every loan file has all documents completed, and that pricing was fair and not in breach of any regulation. “That’s how they hold the banks accountable. For the customer, it’s great,” Gupta said.

 Another way regulators stay on top of banking practices is by having quarterly meetings and gathering a lot of reporting directly from banks. “This is to get a business overview of what’s happening; there’s a lot of visibility into what’s going on,” Gupta said.

Regulations That Affect Home Equity Lending

Part of what home equity loan regulators do is make sure that banks are complying with several important laws on the books. Some of these laws are very broad, but they each have an impact on home equity lending in some way.

The Truth in Lending Act

Also known as Regulation Z, The Truth in Lending Act (TILA) ensures that there is pricing transparency so borrowers know what they are getting into when they take out a home equity loan or HELOC. Details such as the annual percentage rate (APR), the interest rate, the payment terms, and other elements of financing must be clearly disclosed, and there are specific rules for when and how to do that. This helps borrowers make apples-to-apples comparisons when they are shopping for lenders.

Lenders have to be mindful about not using deceptive or misleading language in their advertisements or promotions, to comply with the Truth in Lending Act. It also gives borrowers a “right of rescission,” which is three days to back out of a loan and recoup any fees if they change their mind.

The Equal Credit Opportunity Act

The Equal Credit Opportunity Act, implemented by Regulation B, was created to ensure that all borrowers encounter a level playing field when accessing credit. In other words, it prohibits lenders from discriminating against applicants because of their race, gender, religion, marital status, national origin, age, etc.

If someone applying for a home equity loan or HELOC feels they were unfairly discriminated against, they can file a complaint with the Department of Housing and Urban Development (HUD) or file a lawsuit.

The Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) was designed to protect who has access to your credit history—and to give consumers a regular look at their own credit reports. That way, you know where you stand, and lenders must get your permission to run your credit report.

In addition, lenders are obligated to report your account activity to the credit bureaus to ensure that your credit history remains accurate and up-to-date, Gupta said. On the consumer side, the FCRA also grants the right to dispute items in your credit report, and requires lenders to provide an explanation if your credit application is denied.

The Fair Housing Act

Similar to the Equal Credit Opportunity Act, the Fair Housing Act (FHA) is a broad regulation that prohibits housing and lending discrimination. The FHA makes it illegal to deny access to a home equity loan, charge a higher fee or interest rate, steer a borrower to less-favorable programs, or provide a different customer experience because of race, color, religion, sex, familial status, national origin, or disability.

Know Your Rights as a Borrower and Homeowner

“There is still a lot of 'PTSD' (post-traumatic stress disorder) from the Great Recession, and housing customers are still nervous about borrowing from their house because of what people went through 15 years ago,” Gupta said.

However, borrowers are more protected today due to the regulations that have since been enacted, Gupta added. “There’s a lot more safety and soundness in the system to give customers comfort. There are laws to protect customers against getting in over their head,” he said.

It’s important to be aware of your consumer rights if you’re considering a home equity loan or HELOC, and to work with reputable lenders.

“Working with a bank that is regulated means they have been battle-tested and gone through tons of scrutiny to prove they are aboveboard,” Gupta explained.

If you have a bad lending experience or feel you weren’t treated fairly, Gupta recommended filing a complaint with the CFPB. “All complaints are taken very seriously,” he said. Another avenue for recourse could be contacting the bank itself, contacting your state attorney general, or reporting your complaint to the FTC.

Frequently Asked Questions (FAQs)

How much can you borrow on a home equity loan?

The amount you can borrow on a home equity loan will vary based on your personal finances and the lender’s terms. In general, most banks allow homeowners to borrow around 80% to 85% of the home’s loan-to-value ratio (LTV). Some lenders might have a minimum or maximum amount you’re allowed to borrow as well.

How hard is it to get a home equity loan?

Getting approved for a home equity loan is based on similar factors that were considered when you got your original home mortgage. It is, in fact, a second mortgage on your home. You’ll have to meet borrower income and credit requirements that indicate you’ll be able to follow through on loan repayment, and you’ll need adequate equity in the home.

How do you qualify for a home equity loan?

In general, to qualify for a home equity loan, you’ll start by filling out an application. Your home will have to be appraised to see what the current value is to determine if you have enough equity. The lender then will review your credit history, and you’ll be asked to provide documentation to verify your income and expenses to meet the lender's debt-to-income (DTI) and other standards.

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Article Sources

  1. National Association of Realtors. “First Quarter of 2022 Brings Double-Digit Price Appreciation for 70% of Metros.”

  2. Federal Trade Commission. “Home Equity Loans and Home Equity Lines of Credit.”

  3. Metro Federal Credit Union. “Home Equity Loans.”

  4. Experian. “What Is a Draw Period on a HELOC?

  5. Consumer Financial Protection Bureau. “Celebrating 10 Years of Consumer Protection.”

  6. Office of the Comptroller of the Currency. “Laws & Regulations.”

  7. Federal Reserve Bank of San Francisco. “What Is the Fed: Supervision and Regulation.”

  8. Office of the Comptroller of the Currency. “Truth in Lending.”

  9. U.S. Department of Justice. “The Equal Credit Opportunity Act.”

  10. Federal Trade Commission. “Fair Credit Reporting Act.”

  11. U.S. Department of Housing and Urban Development. “Fair Lending.”