Equity Loans

Delinquencies on home equity loans and lines of credit jumped to record levels in the third quarter, a banking trade group said Thursday. Home equity loan delinquencies rose to a record 4.3% of such accounts from 4.01% in the second quarter, the American Bankers Assn. reported. Delinquencies on home equity lines of credit also hit a record, climbing to 2.12% from 1.92%. The troubles with housing debt contrasted with an improvement seen with other consumer loans, the bankers group said.

Consumers are getting better at keeping up with loan payments. The portion of consumers with payments overdue on credit cards, auto loans and other debt dropped in the first three months of the year to the lowest level since 2007, according to the American Bankers Assn. Overall, the percentage of consumer loans that were at least 30 days overdue fell to 2.35% in the January-through-March period, down from 2.49% in the last quarter of 2012. It was the best performance since the second quarter of 2007, and put consumer delinquencies below the 15-year average of 2.4%, the group said.

A national survey on home equity loans found that Americans use them with caution and limit the amounts they borrow because "they're well aware that they're betting their home," private researchers said today. Fifty-eight percent of homeowners had a first mortgage and 11% had other loans secured by home equity, according to a July-November survey of 2,510 households by the Survey Research Center at the University of Michigan.

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The House Banking Committee voted unanimously today to require banks and credit unions to provide more timely and complete information on home equity loans, or second mortgages. Rep. Frank Annunzio (D-Ill.), chairman of the committee's consumer affairs subcommittee, said: "This legislation will enable consumers to understand fully the conditions of this new form of consumer borrowing. It will make clear to them that they risk the loss of their home in the event of default."

The House on Monday approved a bill imposing a series of consumer protections on financial institutions offering home equity loans, which have soared in popularity because of the new income tax law. The bill, approved by voice vote, prohibits misleading advertising and mandates that consumers get detailed descriptions of the loans before they pay any non-refundable fees, including the risk of losing one's home if the borrower defaults.

Many California financial institutions are encouraging "frivolous" use of home equity loans and failing to disclose "dangerous pitfalls," leaving consumers under-informed and exposed to higher-than-intended risks of losing their homes, a survey to be released today contends.

Americans cut their credit use in May, reducing the total of outstanding consumer debt by a seasonally adjusted $557 million in part by turning to increasingly popular home equity loans, the Federal Reserve Board said. The rate of decline in consumer debt for May, 1.1% at an annual rate, was the largest since a 4.5% decline in July, 1980. Outstanding credit was initially reported falling $63 million in March but that was revised to a $322-million gain.

After the Northridge earthquake in 1994, Wilna and Joe Evans did not think their Crenshaw district house suffered much damage. But they were happy to get help when a man appeared on their doorstep to offer them financial assistance for minor quake damage and other long-overdue repairs to their 20-year-old home.

Slow job growth and declining home prices are causing financial problems for more Americans, who are falling behind on consumer debt, including home equity loans, at the highest rate since 2001, the American Bankers Assn. said Tuesday. Credit counselors said consumers were paying the price for reckless attitudes about debt fostered by years of easy credit, particularly in the mortgage market.

A leading bank trade group said Americans are making headway in cleaning up their finances, with borrowers missing fewer payments on credit cards and other consumer loans in the first three months of the year — the third straight quarterly decline. Delinquency rates also fell for home equity loans and credit lines in the first quarter, according to an analysis released Wednesday by the American Bankers Assn. It was the first quarter that home equity loan delinquencies had fallen in two years, an encouraging sign, said James Chessen, chief economist for the banking trade group.

Delinquencies on home equity loans and lines of credit jumped to record levels in the third quarter, a banking trade group said Thursday. Home equity loan delinquencies rose to a record 4.3% of such accounts from 4.01% in the second quarter, the American Bankers Assn. reported. Delinquencies on home equity lines of credit also hit a record, climbing to 2.12% from 1.92%. The troubles with housing debt contrasted with an improvement seen with other consumer loans, the bankers group said.

Weekly survey of 20 Orange and L.A. County lenders as of 11/11/2009 Compiled by HSH Associates, Financial Publishers; www.hsh.com -- Loans to $417,000 Week ended Week ended Week ended 11/11/2009 11/4/2009 5/13/2009 30-year fixed 5.05%+0.30pt 5.15%+0.29pt 4.99%+0.41pt 15-year fixed 4.60%+0.28pt 4.62%+0.33pt 4.73%+0.41pt $417,000 and up 30-year fixed 6.00%+0.50pt 5.96%+0.52pt 6.58%+0.85pt 15-year fixed 5.50%+0.33pt 5.53%+0.44pt 6.45%+0.98pt Home equity lines 5.81% 5.81% 5.19% Home equity loans 8.89% 8.89% 8.93% 6-month LIBOR 0.53% 0.56% 1.41% 1-year Treasury 0.36% 0.39% 0.53% 6-month Treasury 0.16% 0.17% 0.32% 6-month CD 0.31% 0.31% 1.24% Prime rate 3.25% 3.25% 3.25% 11th District 9/2009 8/2009 3/2009 cost of funds 1.272% 1.412% 1.627% --

Traditional 30-year mortgages these days are unusually affordable by historical standards, but if you're looking for a home equity line of credit, don't expect any deals. The market for such credit lines, which practically shut down as home prices tumbled, remains tight as a drum despite signs of life in the rest of the home loan market. And offers that let you pay only the prime rate or just above that benchmark are long gone. "The days of lenders falling all over themselves to help you empty the equity out of your home aren't coming back any time soon," said Keith Gumbinger, vice president at loan data tracker HSH Associates.

Home equity loans have developed a fast following in these troubled economic times as more homeowners find themselves debt-ridden and cash-strapped. Loans based on home values can give consumers tens of thousands of dollars at relatively low interest rates. And unlike other loans, the interest in many cases is tax deductible. But experts warn that homeowners should exercise a great deal of caution before using their most valuable possession as collateral.