NCUA Warns On Home EquityLending

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ALEXANDRIA, Va. - (05/17/05) -- NCUA warned Monday that creditunions may not be fully assessing the risks associated with homeequity loans and lines of credit and loans, which have become anincreasingly popular product while home prices have climbed. "Inmany cases, the institutions' credit risk management practices forhome equity lending have not kept pace with the product's rapidgrowth and easing of underwriting standards," said NCUA, whichissued the warning along with the bank regulators. The agenciescited several risk factors that have invited scrutiny, chief amongthem vulnerability to interest rate increases. The others are:interest-only features; limited or no documentation of assets,employment or income; higher loan-to-value and debt-to-incomeratios; lower credit risk scores; greater use of automatedvaluation models; and increased numbers of transactions generatedthrough loan brokers or other third parties.

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