COSTA MESA, Calif. (6/1/15)--The “end-of-draw” period, or the point at which borrowers of home-equity lines of credit (HELOCs) must begin repaying their debt, on more than $265 billion of outstanding loans nationwide is near, a recent study by Experian has found.
And it’s an event that could carry major implications for both the lending industry and consumers, Experian found.
The loans soon to reach the repayment phase largely were originated between 2005 and 2008.
At the end of a HELOC period, consumers with outstanding balances must refinance the debt or pay off the loans as balloon payments.
“With many consumers entering into this end-of-draw phase on their loan, financial institutions are reaching out to their customers to make sure they understand and are prepared for this change in their payment structure,” said Rod Griffin, Experian director of public education.
The massive number of outstanding loans tied to the forthcoming end-of-draw period could upturn the current low rate of delinquencies on HELOCs nationwide.
Between 2013 and 2014, for example, Experian tracked a 207% increase in the number of 90-day delinquencies on HELOC loans when they reached their end-of-draw periods, compared with only a 29% increase for those who weren’t “end of draw.”
Further, those delinquent on their HELOCs also are more likely to become delinquent on other loans, as between 2013 and 2014, delinquencies on mortgages and auto loans climbed by 112% and 48.5% respectively for those who were more than 90 days delinquent on their HELOCs.
“This analysis is critical as we want to not only help lenders prepare and understand the payment stress of their borrowers, but also give consumers and opportunity to understand what the impact may be to their status and how to be better prepared for it,” said Michele Raneri, Experian vice president of analytics and business development.