A home equity loan, also called home equity loan, home equity installment loan, or second mortgage, is a type of consumer debt. Home equity loans allow homeowners to borrow against the equity in their home. The loan amount is based on the difference between the home’s current market value and the homeowner’s mortgage balance.
These types of loans carry risks. Home equity loans force mortgage holders to put their homes at risk if they do not repay the loan. And since property is often a family’s most valuable asset, defaulting on a home equity loan can have serious consequences. Because of these risks, home equity lending is relatively tightly regulated by both state and federal agencies.
In this article, we will examine the regulatory environment for home equity loans and explain which federal agencies control which of these loans.
Key points to remember
- Many rules affect home equity lending: federal regulations, state laws, and codes of conduct issued by industry organizations.
- The federal agency that regulates a specific home equity loan depends on the agency issuing the loan.
- Home equity loans can be issued by banks and credit unions, as well as several other types of financial institutions. Each is regulated by a different body.
- If you believe a lender has acted in violation of the law, a good place to start is to contact the Consumer Financial Protection Bureau (CFPB) or the US Department of Housing and Urban Development (HUD). Either agency may be able to tell you where to file a complaint.
Home Equity Loan Regulation
There are basically two main sources of home equity loan regulation: individual states and the federal government.
There are a number of federal laws relating to home equity loans. These include the Truth in Lending Act (TILA), which details how this type of loan can be sold and provides consumers with some key rights when it comes to working with them. Another key piece of mortgage regulation is the Property Settlement Procedures Act (RESPA). This law was enacted by Congress so that buyers and sellers would be aware of the full settlement costs of buying a home. Then there are laws like the Dodd-Frank Wall Street Reform and Consumer Protection Act, which Congress passed in the wake of the subprime mortgage meltdown that contributed to the 2007-2008 financial crisis. .
Additionally, each state in the United States has laws that affect home equity loans in some way, and these are constantly changing. There is indeed a manual in several volumes published each year, Pratt State Regulations on Second Mortgages and Home Equity Loanswhich gives an overview of these laws.
In short, many rules and regulations apply to home equity loans, and the same loan can be subject to several different regulators.
Who regulates home equity loans?
Just as there are many rules and regulations that affect home equity loans, there are also many organizations that can regulate any given loan. This is because home equity loans can be issued by a wide variety of financial institutions; banks and credit unions are most common, but home equity loans can also be obtained from commercial or agricultural lenders. Each type of institution has its own regulator who is ultimately responsible for monitoring the loans they make.
Here are the most important of these regulators:
|Regulatory agency||Regulated entity(ies)||Phone/Website|
|Federal Reserve Consumer Aid PO Box 1200 Minneapolis, MN 55480||Federally Insured State Chartered Bank Members of the Federal Reserve||(888) 851-1920 www.federalreservecon-sumerhelp.gov|
|Consumer Financial Protection Bureau (CFPB) PO Box 4503 Iowa City, IA 52244||Deposit-taking institutions and insured credit unions (and their affiliates) with assets greater than $10 billion, and non-custodial institutions such as mortgage originators, mortgage brokers and managers, large participants other financial services products, private education loan providers and payday lenders||(855) 411-2372 www.consumerfinance.gov|
|Office of the Comptroller of the Currency (OCC) Customer Assistance Unit 1301 McKinney Street Suite 3450 Houston, TX 77010||National banks and savings banks/federally chartered associations||(800) 613-6743 www.occ.treas.gov www.helpwithmybank.gov|
|Federal Deposit Insurance Corporation (FDIC) Consumer Response Center 1100 Walnut Street, Box #11 Kansas City, MO 64106||Federally-insured state-chartered banks that are not members of the Federal Reserve||(877) ASK-FDIC or (877) 275-3342 www.fdic.gov www.fdic.gov/consumers|
|National Credit Union Administration (NCUA) Consumer Assistance 1775 Duke Street Alexandria, VA 22314-3428||Federally chartered credit unions||(800) 755-1030 www.ncua.gov www.mycreditunion.gov|
|Federal Trade Commission (FTC) Consumer Response Center 600 Pennsylvania Avenue, NW Washington, DC 20580||Finance companies, retail stores, car dealerships, mortgage companies and other lenders, and credit bureaus||(877) FTC-HELP or (877) 382-4357 www.ftc.gov www.ftc.gov/bcp|
|Farm Credit Administration Office of Congress and Public Affairs 1501 Farm Credit Drive McLean, VA 22102-5090||Agricultural lenders||(703) 883-4056 www.fca.gov|
|Small Business Administration (SBA) Consumer Affairs 409 3rd Street, SW Washington, DC 20416||Small business lenders||(800) U-ASK-SBA or (800) 827-5722 www.sba.gov|
Each of these regulators oversees a different type of lender, and some lenders are covered by multiple federal agencies in addition to state regulators.
Does Reg Z apply to home equity loans?
Yes. Regulation Z is a federal law that standardizes how lenders pass on the cost of borrowing to consumers. It also limits certain lending practices and protects consumers against deceptive lending practices. It applies to residential mortgages, home equity lines of credit, reverse mortgages, credit cards, installment loans and some student loans.
How does a mortgage loan work?
A home equity loan is a loan for a set amount, repaid over a set period of time, which uses the equity in your home as collateral for the loan. If you are unable to repay the loan, you risk losing your home to foreclosure.
Are there state laws on home equity loans?
There are many rules that affect home equity lending: federal regulations, state laws, and codes of conduct issued by industry organizations. The federal agency that regulates a particular home equity loan depends on the agency that issued the loan. Home equity loans can be issued by both banks and credit unions, as well as several other types of financial institutions, and each is regulated by a different body.