There could be a new wave of delinquencies among home equity line of credit borrowers as a large percentage are moving into the repayment phase, a report from Experian said.
There are $265 billion in outstanding HELOC loans originated between 2005 and 2008 which are reaching the point where consumers can no longer borrow against them, according to Experian.
These outstanding HELOC loans could have significant implications for consumers, as well as the greater lending industry. The increased repayment burden could bring higher monthly payments for the consumer, making them more likely to go delinquent on the HELOC loan along with other types of debt.
HELOC delinquencies had gone back down to pre-recession levels. According to the Experian analysis, 0.5% of loans are in late-stage delinquency (90-180 days past due) compared to 2009, when they were 1.81%, their highest. However, between 2013 and 2014, borrowers at the end of the draw period showed a 307% increase in the number of 90-day HELOC delinquencies; borrowers who could still access the line had a 29% increase.
From 2013 to 2014 it reported marginal changes in delinquencies on other products for consumers not at the end of the draw on their HELOC, or paying their loan at the time of repayment. For consumers identified as 90 days delinquent and at the end of the draw, however, it found a 112% increase in delinquency on their mortgage, 48.5% auto and 24% bankcard trades.
Under the loan terms, consumers can either enter into a repayment program at the end of the HELOC period that can be structured over time or pay off the loan in a lump sum or balloon payment.
Meanwhile, HELOC originations have been steadily trending upward since 2010. They were on a steep decline during the recession, with so many borrowers who had little or no equity in their homes. There were $20.44 billion in originations in the fourth quarter of 2010, but that number has soared 81% to $37.04 billion in the same quarter last year.
“As home prices have rebounded in much of the country, we’re seeing the same trend with HELOCs,” said Michele Raneri, Experian’s vice president of analytics and business development. “This could be a sign of the economy further recovering, yet there are still concerns about the pre-recession HELOCs that are now in repayment and how that could negatively impact consumers and the economy as a whole.”