The Stress of Repaying $265 Billion in HELOCs

A large portion of home equity lines of credit (HELOCs) originated between 2005 and 2008 and representing $265 billion are outstanding and nearing the repayment phase. But consumers coming to the end of draw on these loans are more likely to go delinquent, not just on HELOCs, but also on other types of debt, according to new research.

Experian, a global information services company, recently released its latest analysis on U.S. lending trends related specifically to HELOCs. And its findings largely show that the looming end-of-draw period for many borrowers could result in significant implications for consumers and the lending industry as a whole.

“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 an opportunity to understand what the impact may be to their financial status and how to be better prepared for it,” said Michele Raneri, Experian’s vice president of analytics and business development, in a written statement.

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As existing HELOCs approach their reset and repayment period, some have indicated this, along with rising interest rates, could help create a “perfect storm” for potential reverse mortgage use among senior borrowers.

Consumers who are coming to the repayment phase of their HELOCs, according to the study, are much more likely to go delinquent on their HELOC loan and on other types of credit.

In fact, between 2013 and 2014, there was a 307% increase in the number of 90-day delinquencies on HELOCs for borrowers that were end-of-draw, compared to just 29% that were not end-of-draw.

Additionally, if a consumer was 90 days past due on their HELOC at end of draw, there was a 112%, 48.5% and 24% increase in delinquency on their mortgage, auto and bankcard trade, respectively.

“With many consumers entering into this end-of-draw phase of 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, director of public education at Experian. “The financial services industry is providing education to help borrowers develop a plan to manage their payments. Consumers should take advantage of all of the credit education resources available to them to manage these payments effectively, along with the other financial commitments they have.”

Written by Emily Study

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