NIU
Employees Federal Credit Union
Home Equity Line-of-Credit Policy
1.
Line-of-Credit Administration
The lending
practices of the NIU Employees Federal Credit Union are established to be
sound, prudent, and safe. Line-of-Credit
decisions will meet the needs of the entire Credit Union membership and will
comply with state, federal, and NCUA guidelines and laws regarding lending.
It is the
responsibility of the President to administer and monitor line-of-credit
policy. Any changes to written
line-of-credit policy must be submitted to the Board of Directors for review.
The President is
authorized to approve and deny lines-of-credit.
Approved underwriting guidelines must be followed at all times (see
document Underwriting Guidelines). The Board of Directors must approve all
exceptions to lines-of-credit policy and underwriting guidelines. In the case of a member disagreement with a
lending decision, the member and the loan officer must offer written statements
to the Board of Directors who will then decide the appeal.
2.
Lending Practices
Home equity
lines-of-credit are available to all qualifying members of the Credit
Union. The lines-of-credit will be
granted on property located in the state of Illinois. Lines-of-credit made to Credit Union
employees, board members, and committee members must follow the same guidelines
as for all other members. The President must approve these loans.
No one member shall
accumulate loans and lines-of-credit exceeding $6,000 in unsecured debt and/or
$200,000 in secured debt. The maximum
limit for a home equity line-of-credit is $100,000.
The Board of
Directors is authorized to establish the terms and conditions of the home
equity line-of-credit and to change them based on recommendations from the President.
Line-of-credit
prices will be based on an adjustment to the prime rate as published in the
Wall Street Journal and will adjust monthly.
The President or designated Administrative Assistant is responsible for
monitoring line-of-credit pricing and how changes are made and
implemented. The maximum line-of-credit rate shall be 18% APR and the base
rate will be 5.25% APR.
The collateral used
for our home equity lines-of-credit will be residential property owned by the
member. It is limited to a one-to-four-unit
property. Before a home equity
line-of-credit is granted the market value of the collateral will be determined
by the most recent tax bill. A request for an appraisal can be made at any time
by the Credit Union to monitor the value of the collateral. An appraisal no
more than one (1) year old may be submitted by the member if the member feels
the appraisal would be different than the tax bill. The member would pay the
cost of the appraisal, if necessary.
The staff will
maintain line-of-credit records in accordance with state, federal, and NCUA
guidelines. All information gathered for
a home equity line-of-credit will remain confidential.
3.
Product Specific Information
A home equity
line-of-credit is defined as a line-of-credit secured by real estate that
allows the owner of the real estate access to the equity established in the
property.
The lines-of-credit
will be available on single-family dwellings, two- to four-family dwellings,
and condominiums occupied by the member in the state of Illinois.
An
annual fee of $20 will be assessed on the 1st of February.
The draw period of
home equity lines of credit shall be no longer than seven (7) years. The
repayment period of eight (8) years shall start at the end of the draw
period. Monthly payments of at least
interest due will be required during the draw period. At the end of the draw period, a new payment
schedule will be calculated to amortize the balance over the next eight years. The rate used for this calculation will be
changed and locked in as Prime only as of the review date. Members will
be able to access their lines-of-credit through share drafts.
Title
insurance is required of all home equity lines-of-credit.
The Credit Union
will determine if a property is located in a special flood hazard area. If so, the borrower must purchase flood
insurance before the loan can close.
A hazard insurance
policy is required naming the Credit Union as loss payee. The policy amount should be greater than the
total of the first and second lien on the property.
All home equity
lines-of-credit must follow federal and state lending regulations including the
Fair Housing Act, Equal Credit Opportunity Act, Truth-in-Lending Act, Fair
Credit Reporting Act, Home Mortgage Disclosure Act, Real Estate Settlement and
Procedures Act, and National Flood Insurance Act.
4.
Portfolio Management
Portfolio
management involves the administration of lines-of-credit after they are
closed. The primary duties are
monitoring the concentration of loan and line-of-credit products, reviewing
loan loss reserves; line-of-credit servicing, line-of-credit modifications,
subordination, and the release of security are the responsibilities of the
President or a designated Administrative Assistant. Any exceptions will be reported to the Board
of Directors. It is the goal of the
Credit Union to have not more than 40% of our outstanding loans to be home
equity lines of credit. We will continue
to follow our current asset liability management policy and keep 80% of our
deposits loaned out.
It is the
responsibility of the President to follow the set guidelines for foreclosure,
repossession, and the sale of property acquired through foreclosure. All costs associated with foreclosure will be
passed on to the member (i.e. collection costs, attorney’s fees, etc.)
Underwriting Guidelines
1.
Credit Underwriting
The qualifying debt
ratio for home equity lines-of credit is 50% (the monthly expenses divided by
net monthly income). The home equity
payment used to calculate the debt ratio is the credit limit amortized over 15
years.
Example of debt
ratio calculation:
Income: $2500/$1000
Debts:
Mortgage $750, Credit Cards $100,
Car $250, Home Equity $633
$1733 / $3500 = 50% debt ratio
Would
qualify for a $50,000 home equity loan
Sample
payments on home equity loans assuming a rate of 4.75% APR:
· $10,000
= $78
· $15,000
= $117
· $20,000
= $156
· $25,000
= $194
· $30,000
= $233
· $35,000
= $272
· $40,000
= $311
· $45,000
= $350
· $50,000
= $389
Each line-of-credit
decision requires the following documentation: completed line-of-credit
application, confirmation of Credit Union membership, credit report, title
report, valuation of collateral, and verification of income.
2.
Collateral Underwriting Guidelines
The
maximum loan-to-value ratio shall be 90% of the home value for members with a
debt ratio of 1-30%, or 80% of the home value for members with a debt ratio of
31-50%. To calculate the available
line-of-credit balance, subtract the qualifying percentage from the home value,
minus the first mortgage balance.
Tax-assessed value is an acceptable means of valuing a property.
Tax-assessed value
is an acceptable means of valuing a property.
It is assumed that the 100% tax-assessed value equals either 80% or 90%,
based on debt ratio, of the appraised value.
A title search is
done to verify ownership and report the current encumbrances on the property.
A standard flood
hazard determination form must be completed for each loan. If it is determined that the property is
located in a flood hazard area, the member must purchase flood insurance before
the line-of-credit can close.
A copy of a hazard
insurance policy listing the Credit Union as loss payee must be provided as
soon as possible after closing. The
policy amount must be sufficient to cover the amount of the first mortgage loan
and the home equity line-of-credit.
The Credit
Union will make home equity lines-of-credit on single-family dwellings, two- to
four-family dwellings, and condominiums in Illinois occupied by the member.