1st Lien HELs Growing

ABA releases home equity study
By MortgageDaily.com staff
1/10/2005

Recent trends in home equity lending include the increasing use of first lien HELs, the growing acceptance of HELs from seniors and a rise in 90-day delinquency, according to a report from the nation's consumer bankers.

Those findings were outlined in the 18th Annual Home Equity Lending Study by the Consumer Bankers Association and BenchMark Consulting International. The study was based on activity of 23 banking participants, according to an announcement Monday.

For the first time in years, growth in closed-end home equity loans increased substantially, compared to open-end line-of-credit growth, BenchMark said. Closed end loans grew to 15% in 2004 from 9% the previous year.

The survey also found that the average for borrowers' appraised home values is well above the median in the market, the announcement said.

While home equity lending has historically revolved around second lien requests, first liens are reportedly gaining spotlight -- growing to 37% of originations last year.

"A big takeaway for lenders here is the risk mitigation factor," said Jim Leath, a BenchMark manager, in the announcement. "The growth of these first lien positions in home equity portfolios indicates this is a good time to ensure specific risks have not been overlooked."

Overall delinquency rates were down, but mainly due to a rise in home equity lending, the study suggested. However, an area of risk management for lenders was found in the growth of 90-day-plus delinquencies.

"The clear increase in 90-day-plus delinquencies implies that we may be taking on some hard-core risk," Leath said. "When those numbers are rising there's deep concern about charge-offs."

A positive trend BenchMark suggested lenders "may also want to be in front of" is lending to seniors. The banks' responses reportedly showed that this group is not only borrowing higher amounts, but is also an increasing segment of home equity borrowers. Leath said the findings indicate that seniors are using home equity for vacations, luxury items and other non-need spending, rather than drawing on invested, fixed income.

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