Home Equity a Cause for Concern?

Home Equity a Cause for Concern?

For the first time since 2012, delinquencies on HELOCs, or home equity lines of credit, are trending upwards. Data collected showed an annual increase twice, measuring from this past March. Because of this trend, Black Knight Financial Services gathered more information to make a more detailed analysis.

HELOC Data From 2015 and 2016

In the beginning of 2015, out of all active HELOCs, 17% were taken out in 2015. At the ten-year mark, the open periods end, making their loans fully amortized. Since then, the amount of HELOCs in 2015 has decreased to 13%.

During the first three months of 2016, delinquency rates for HELOCs were lower than during the same time period of the previous year. However, during March, these rates rose 4 basis points higher than in March 2015. From October to January 2015, there was a steady inclination of these delinquencies. These are significant numbers when looking at mortgage performance.

What is Causing the Increase?

According to Black Knight, a majority of these delinquencies are from the HELOCs that originated in 2005. For these vintage loans, there is a reported 90-92% increase in delinquencies. Previously, other vintage loans that were doing well balanced out the delinquencies that began once the draw period ended for the loans from 2005. Now, however, these vintage loans are causing the overall HELOC delinquency rate to increase. If we do not include those loans, the delinquencies would actually be down 12% from the year before.

Loans from 2005 aren’t the only ones we should be worried about. The draw period for 2006 vintage loans, which comprise 17% of active loans, is ending, and we can expect similar trends. A couple years down the road, loans originating in 2008 will also drive up the number of delinquencies. Vintage loans from 2008 make up 18% of current active loans.

How do Mortgages Affect Listings?

When people are behind on their mortgage payments, they are two times more likely to put their homes on the market. When people are current on their payments, they are more likely to stay put. Overall, there are 500,000 fewer people who aren’t current on their payments than the year before. Compared to March 2012, that number is down by 3 million. While there is not yet data to support it, we may be seeing homes on the market whose mortgages originated in 2005 soon.

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