COSTA MESA, Calif.,
May 28, 2015 /PRNewswire/
-- Experian®, the leading global information
services company, released its latest analysis on U.S. lending
trends related specifically to home-equity lines of credit,
commonly referred to as HELOCs. The study shows that a large
portion of HELOC loans, originated between 2005 and 2008 and
representing $265 billion, are
outstanding and nearing the repayment phase, which is referred to
as "end of draw." This could result in significant implications not
only for consumers, but also for 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.
At the end of the HELOC period, the loan terms direct consumers
to either enter into a repayment program, which can be structured
over time, or pay the loan off in one lump sum or balloon payment.
The study further evaluated what could happen to these loans as
well as other loan products and found that consumers coming to the
end of draw on their HELOC are more likely to go delinquent — not
just on the HELOC loan, but also on other types of debt — as the
increase in repayment burden could mean higher monthly payments for
the consumer.
HELOC Balance Outstanding by Origination Year
HELOCs on the comeback as home prices recover
HELOCs
encountered a large decline during the recession as many borrowers
had little or no equity in their homes, but there is an upward
trend showing that HELOCs have been increasing steadily since 2010.
As of Q4 2014, originations are up 81 percent to $37.04 billion from $20.44
billion in the same quarter in 2010.
"As home prices have rebounded in much of the country, we're
seeing the same trend with HELOCs," continued Raneri. "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."
Delinquencies and risk to other trades
HELOC
delinquencies are down to pre-recession levels since their high in
2009, which is a trend that is occurring with other credit products
as well. The study shows that the percentage of HELOCs that are in
late-stage delinquency — those 90–180 days past due — is down to
0.5 percent from its highest level of 1.81 percent in 2009, which
can be viewed as a positive sign for the industry.
While this might seem like the perfect scenario, with both
increase in originations and pre-recessionary levels of
delinquency, the study also finds that the consumers that are
coming to the repayment phase of their HELOC are much more likely
to go delinquent on their HELOC and on other types of credit.
Between 2013 and 2014, there was a 307 percent increase in the
number of 90-day delinquencies on HELOC loans for borrowers that
were end of draw compared to just 29 percent that were not end of
draw.
HELOC end of draw (EOD) and delinquency relationship to other
loans or debt
That relationship extends beyond just the home equity itself as
we find that borrowers that are delinquent on their HELOC trade are
more likely to also be delinquent on other loans. Between 2013 and
2014, there were marginal changes in delinquencies on other
products (mortgage, auto loan, and auto lease and bankcard trades)
for consumers that were not end of draw on their HELOC or paying as
agreed on their HELOC at the time of repayment. However, if a
consumer was delinquent (90-days past due) on their HELOC at end of
draw, there was a 112 percent, 48.5 percent and 24 percent 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,
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."
Additional resources
- View this blog post for ways consumers can manage the end of
draw period.
- Experian hosts a #CreditChat on Twitter every Wednesday at
3 p.m. Eastern time with consumer
credit expert Rod Griffin. Follow
@Experian_US to join in.
- View the latest infographics and read about Experian's
perspective on trends and news at our Experian News Blog.
- Consumers are welcome to ask their credit questions on our
Facebook page at https://facebook.com/ExperianUS.
- For answers to common questions, advice and education about
consumer credit, you can visit Experian's one-stop resource at
http://www.experian.com/education.
Analysis methodology
Experian evaluated quarterly
HELOC data from Q1 2007 through Q4 2014 from Experian's File
OneSM database for this analysis. For the delinquency
analysis, Experian classified consumers as coming end of draw on
their home-equity line between December
2013 and March 2014 if they
met the following criteria: either a new special comment indicating
the account has entered repayment or a 20 percent payment increase
with no balance change over the same time period. Experian
subsequently assessed the borrower performance on the HELOC and
other trade types between December
2013 and December 2014.
About Experian
We are the leading global information services company, providing
data and analytical tools to our clients around the world. We help
businesses to manage credit risk, prevent fraud, target marketing
offers and automate decision making. We also help people to check
their credit report and credit score, and protect against identity
theft. In 2014, we were named by Forbes magazine as one
of the "World's Most Innovative Companies."
We employ approximately 17,000 people in 39 countries and our
corporate headquarters are in Dublin,
Ireland, with operational headquarters in Nottingham, UK; California, US; and Sao Paulo, Brazil.
Experian plc is listed on the London Stock Exchange (EXPN) and
is a constituent of the FTSE 100 index. Total revenue for the year
ended March 31, 2015, was
US$4.8 billion.
To find out more about our company, please visit
http://www.experianplc.com or watch our documentary, "Inside
Experian."
Experian and the Experian marks used herein are trademarks or
registered trademarks of Experian Information Solutions, Inc.
Other product and company names mentioned herein are the
property of their respective owners.
Contact:
Kristine
Snyder
Experian Public Relations
1 714
830 5192
kristine.snyder@experian.com
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SOURCE Experian