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Home Equity Loan National Norms UPDATED
This entry was posted on 11/1/2007 11:06 AM and is filed under Home Equity Loans.
October 15, 2007 (Updated 11/1/2007): Realty Times (http://realtytimes.com) published today an article summarizing the results from the Consumer Bankers Association's annual home equity loan study (http://www.cbanet.org/files/StudyOrder.pdf?navItemNumber=714).The report found that the average new
equity credit line taken out last year was for $84,812, while the
average home equity loan or second mortgage has been for $57,800.The average home equity borrower, in 2006, had a FICO credit
score of 730, a household income of almost $90,000, a home worth
$337,000, and an existing first mortgage of $169,000. Equity loan borrowers tend to be older on average than the general
population, with 73 percent between the ages of 35 and 64. Thirteen percent of new borrowers are homeowners between 20 and 34
years old. Home equity borrowers older than age 65 accounted for 14% all borrowers.The primary reason for using home equity financing, accounting for 53% of the loans, was to refinance existing debt, while
16% were intended primarily for major home improvements. Another
15% of borrowers took out equity loans to help
purchase additional real estate.Just 0.6 percent of equity loan borrowers and 0.76 percent of credit line customers were late on payments during the past year. Equity loan borrowers’ delinquency rate of 0.6 percent was down
significantly from 0.92 percent in 2005 and 1.3 percent during 2004.
Credit line borrowers, by contrast, are showing signs of rising
delinquencies. Their 0.76 percent rate for 2006 was up dramatically —
by 73 percent — from their rate of 0.44 percent in 2005 and 0.46
percent in 2004.According to a press release from CBA (http://www.cbanet.org/files/CBAR/November2007/home%20equity.htm), Home equity lending
had an uneven year with larger loans, lower profitability, and some
tightening of underwriting to address credit issues, according to CBA’s
annual Home Equity Lending Study, which surveys lending activity as of
June 30, 2007.
The average amount
outstanding on a home equity line of credit (HELOC) was $48,158 as of
June 30, a 14% increase from $42,155 a year earlier, according to the
report. The average home equity loan had a
balance of $50,385, also up 14% from
$44,204 in 2006.
Consumers used 55%
of their available credit on average, the same as a year earlier.
Loans classified as
C or D credits, with borrower FICO scores under 630, dropped 13%,
evidence of tighter underwriting. Lenders nevertheless had strong
volume, with $5.4 billion in new HELOC bookings compared to $3.7 billion
a year earlier, for the responding banks. However, loan bookings were
$1.2 billion, down from $1.6 billion in the year earlier period.
The average new
HELOC approved was for $102,000, up from $85,000 a year earlier. The
average new home equity loan
approved in the last year was $57,000, the same as a year earlier.
Loan-to-value
ratios, a key underwriting measurement, was stable at 67%.
More banks, 91%,
offered non-owner occupied home equity loans, up from 80% in 2006 and
72% in 2005. In 2007, all survey respondents offered tiered pricing on
home equity products, up from 89% a year earlier. Tiered pricing was
most often based on the loan to value ratio.
Home equity loans
purchased through brokers doubled to 10% in 2007.
More banks, 82%,
used a combination of scoring and judgmental decision making to approve
home equity loans, a 53% increase, while judgmental-only decisions
dropped from 28% to 4%.
The average credit
score increased to 737 from 730 in 2006 and 727 in 2005.
Banks review 87% of
accounts, typically by pulling a fresh credit score, an increase from
64% two years earlier.
The average
appraised home value was $410,000, up from $338,000 a year earlier.
The number of home
equity loans designated for property purchase doubled to 15% from 7% a
year earlier.
HELOC delinquency
rates increased to .96% from .76% a year earlier, and loan delinquencies
averaged .83% from .60% a year earlier. Foreclosures were .16% of HELOC
dollars, compared to .09% in 2006 and .12% in 2005. The rate for loans
was .15% in 2007, .08% in 2006 and .23% in 2005.
Average Return on
Equity (ROE) continued the downward trend with a reported 20% decrease
to 11.22% compared to last year’s reported 14.11%.The
survey was prepared for CBA by Benchmark Consulting International,
Atlanta.
CBA is publishing their full report in mid-November 2007, an order form is available at: www.cbanet.org/files/StudyOrder.pdf?navItemNumber=542.
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