Home equity lines of credit (HELOCs) are on the rebound, according to a new white paper from Experian.
As of the fourth quarter of 2015, HELOC originations rose 111%, to $43.03 billion from $20.44 billion in the same quarter in 2010.
At the same time consumers are making payments on time and being responsible with their debts, a positive development for both borrowers and lenders.
Over the past 12 months, $29 billion in HELOC debt originated between 2005 and 2008 has been paid down, as many of these lines of credit are in or are approaching their repayment period.
Even with this positive outlook, consumers and lenders still should proceed somewhat cautiously, as $236 billion in HELOC debt originated between 2005 and 2008 is now nearing repayment.
Given the number of and maturities for these HELOCs, Experian is looking at how consumers are managing these payments and what those spikes and trends mean.
“During the housing boom, home equity lending was heating up, but lenders pulled back significantly as home prices began to fall,” says Michele Raneri, Experian’s vice president of analytics and new business development. “What we’re seeing now is that home values have recovered, but the end of draw is still a factor that needs to be considered when it comes to consumer and lending behavior.”
The study found that consumers coming to the end of draw on their HELOC are more likely to become delinquent, not just on HELOCs but also on other types of debt. That’s because the increase in repayment burden could mean higher monthly payments.
The study stressed that it is important for financial institutions to identify borrowers with HELOCs nearing end of term, as well as key characteristics such as balance and payment. Lenders can then then determine potential payment stress that may affect any other credit products.
“Consumers who have the ability to pay may also be a potential opportunity,” the white paper reports. “They may seek another HELOC as their loan comes to the end of term or they may shop for other credit products, such as a personal loan, during that period. Repayment and loyalty success could mean all the difference.”
HELOCs led credit union loan growth in July 2016, according to CUNA’s economics and statistics department, rising 3%.
Also on the rise were adjustable-rate mortgages and new auto loans (both 1.4%), unsecured personal loans (1.3%), used auto loans (1.1%), and credit cards (1%).