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Who Regulates Home Equity Loans?

There are many rules, and many regulators, for home equity loans

By

Matt Ryan Webber

Updated October 23, 2023

Reviewed by

Lea D. Uradu

Fact checked by

Amanda Jackson

A home equity loan provides homeowners with the ability to borrow against the equity they've built up in their homes. The amount that homeowners can borrow is equal to the difference between the home's current market value and the outstanding amount on the homeowner's mortgage.

These types of loans come with risks. Home equity loans necessitate homeowners to put their homes up as collateral in case 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 regulated by both individual states and federal agencies.

In this article, we’ll look at the regulatory environment for home equity loans and explain which federal agencies have oversight on which of these loans.

Key Takeaways

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 both by banks and credit unions and by several other financial institution types. 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 of mortgage regulation is the Real Estate Settlement Procedures Act (RESPA). This act was enacted by Congress so that 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.

All U.S. states have home equity loan laws, and these laws are always changing. To keep abreast of these laws, you can reference "Pratt’s State Regulation of 2nd Mortgages & Home Equity Loans," which is updated every year.

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 United States. 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 that you can take. One such step is to file a report with the Consumer Financial Protection Bureau (CFPB) or 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 that it issues.

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.federalreserveconsumerhelp.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 non-depository 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 St., 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 St., 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 St. 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 Ave. NW 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 St. 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 Regulation Z Apply to Home Equity Loans?

Yes. Regulation Z is a federal law that was passed in order to protect consumers when borrowing money. The law requires lenders to clearly explain the total cost of borrowing to consumers, prevent lending practices that could be harmful to consumers, and shield consumers from ambiguous lending practices. It applies to mortgages, home equity lines of credit (HELOCs), reverse mortgages, credit cards, installment loans, and some student loans.

What Is the Downside of a Home Equity Loan?

The primary downside to a home equity loan is that your home is used as collateral on the new loan. This significantly increases the risk of losing your home. If you default on your home equity loan, the bank may cease your home and sell it off to cover its losses from your unpaid loan. In addition, home equity loans have higher interest rates than regular mortgages, so your costs will be higher than some standard loans.

Does a Home Equity Loan Hurt Your Credit?

Your credit will be slightly dinged when you apply for a home equity loan as part of the process of the credit check; however, after that, if you make your payments on time and are a responsible borrower, having additional debt and showing you can manage it will improve your credit.

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 by several other financial institution types—and each is regulated by a different body.

Article Sources

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Code of Federal Regulations. “12 CFR Part 226 — Truth in Lending (Regulation Z).”
U.S. Congress. “H.R.9989 — Real Estate Settlement Procedures Act.”
U.S. Congress. “H.R.4173 — Dodd-Frank Wall Street Reform and Consumer Protection Act.”
LexisNexis. “Pratt’s State Regulation of 2nd Mortgages & Home Equity Loans — Western.”
Federal Reserve Board. “What You Should Know About Home Equity Lines of Credit,” Pages A4–A6 (Pages 17–19 of PDF).

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