A home equity loan—also known as an 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 homes. The loan amount is based on the difference between the home’s current market value and the homeowner’s mortgage balance due.
These types of loan come with risks. Home equity loans require mortgage holders to put their house at risk if they default on the loan. And since property is often the single most valuable asset owned by a family, a default on a home equity loan can have serious consequences. Because of these risks, home equity loans are relatively tightly regulated—both by individual states and by federal agencies.
In this article, we’ll look at the regulatory environment for home equity loan, and explain which federal agencies have oversight on which of these loans.
- Many rules affect home equity loans: federal regulations, state laws, and codes of conduct issued by industry organizations.
- Which federal agency regulates a specific home equity loan depends on the organization issuing the loan.
- Home equity loans can be issued by both banks and credit unions, and several other types of financial institution. Each is regulated by a different body.
- If you think a lender has acted in contravention of the law, a good place to start is by contacting the Consumer Financial Protection Bureau (CFPB) or the U.S. Department of Housing and Urban Development (HUD). Either agency may be able to advise you where to make a complaint.
Regulations on Home Equity Loans
There are essentially two main sources of regulation on home equity loans—individual states and the federal government.
There are a number of federal laws that relate 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 component to mortgage regulation is the Real Estate Settlement Procedures Act (RESPA). This act was enacted by Congress so buyers and sellers are given disclosures about the full settlement costs related to home buying. Then there are laws like the Dodd-Frank Wall Street Reform and Consumer Protection Act, which Congress passed following the subprime meltdown that contributed to the 2007-2008 financial crisis.
In addition, every state in the U.S. has laws that affect home equity loans in some ways, and these are constantly changing. There is, in fact, a multi-volume textbook published every year, Pratt's State Regulation of 2nd Mortgages & Home Equity Loans, which gives an overview of these laws.
In short, there are many rules and regulations that apply to home equity loans, and a single loan may be subject to multiple different regulators.
Mortgage lending discrimination is illegal across the U.S. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).
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 a given loan. This is because home equity loans can be issued by a wide variety of financial institutions; banks and credit unions are the most common, but home equity loans can also be taken out with commercial or agricultural lenders. Each type of institution has its own regulator that is ultimately responsible for overseeing the loans they issue.
Here are the most important of these regulators:
|Regulatory Agency||Regulated Entity(ies)||Telephone/Website|
|Federal Reserve Consumer Help P.O. Box 1200 Minneapolis, MN 55480||Federally insured state-chartered bank members of the Federal Reserve System||(888) 851-1920 www.federalreservecon-sumerhelp.gov|
|Consumer Financial Protection Bureau (CFPB) P.O. Box 4503 Iowa City, IA 52244||Insured depository institutions and credit unions (and their affiliates) with assets greater than $10 billion, and nondepository institutions such as mortgage originators, mortgage brokers and servicers, larger participants of 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 federally chartered savings banks/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 System||(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, N.W. Washington, DC 20580||Finance companies, retail stores, auto dealers, 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 Congressional 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, S.W. 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 convey the cost of borrowing to consumers. It also restricts certain lending practices and protects consumers from misleading lending practices. It applies to home mortgages, home equity lines of credit, reverse mortgages, credit cards, installment loans, and certain student loans.
How Does a Home Equity Loan Work?
Are There State Laws on Home Equity Loans?
Yes, many. And they are constantly changing. If you think you’ve been mis-sold a home equity loan, you should first contact the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development (HUD).
The Bottom Line
There are many rules that affect home equity loans: federal regulations, state laws, and codes of conduct issued by industry organizations. Exactly which federal agency regulates a particular home equity loan depends on which organization issued the loan. Home equity loans can be issued by both banks and credit unions, and several other types of financial institution—and each is regulated by a different body.
Consumer Financial Protection Bureau. “What Is a Home Equity Loan?”
Code of Federal Regulations. "12 CFR Part 226 - Truth in Lending (Regulation Z)."
Congress. "H.R.9989 - Real Estate Settlement Procedures Act."
Federal Reserve. “What You Should Know About Home Equity Lines of Credit,” Pages A4–A6.
Federal Trade Commission. "Home Equity Loans and Home Equity Lines of Credit."