Home Equity Loan National Norms UPDATED

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.






Posted by Mark Rodrigues at 11/1/2007 11:06 AM
Categories: Home Equity Loans
 

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