by Calculated Risk on 7/02/2008 03:33:00 AM

HousingWire has the story: FDIC Warns Banks on HELOC Freezes, REO Management. On the HELOC story:

[B]anks are moving to freeze HELOCs globally, and then evaluating available credit later on a case-by-case, property-by-property basis ... The FDIC letter warned banks that such a shotgun-style approach to freezing HELOCs might violate Truth-in-Lending regulations; under Regulation Z, lenders can reduce an applicable credit limit only in the event of “significant decline” to the value of an individual property (a “material change” in the borrower’s financial condition — such as the loss of a job — qualifies as well).

And on REOs:

Our sources suggest that some banks are choosing not to pay taxes on certain low-value REO properties in hard-hit neighborhoods, in the hopes that local municipalities will take the property to a tax sale rather than force the lender to carry the property on its books.

The FDIC reminded banks that doing so would violate existing bank safety and soundness guidelines ...

Here is the FDIC Guideline on REOs. And some of the instructions:

Maintenance. ORE should be maintained in a manner that complies with local property and fire codes. Other requirements, such as homeowner association covenants, may also require careful attention. Efforts to ensure an ORE property is maintained in a marketable condition not only improve an institution's ability to obtain the best price for the property, but also minimize liability and reputation risk.

Real Estate Taxes. Taxes on ORE should be paid in a timely manner to avoid unnecessary penalties and interest.

Insurance. A review of an institution's umbrella insurance policies should be performed to determine if adequate hazard and liability coverage for ORE exists. If not, management should consider obtaining policies on each parcel of ORE. If an institution decides to self-insure, this decision should be documented in the ORE file.

Other Expenses. Management should implement reasonable procedures for managing any other miscellaneous expenses the institution may incur during the ORE holding period. These expenses could include, but are not limited to, sewer and water fees, utility charges, property management fees, and interest on prior liens.

In other words, pay the bills!