A survey released by the Consumer Bankers Association in June painted a sanguine picture of home equity lenders routinely making high-LTV loans-to borrowers who are older, richer, and more creditworthy than before.

The implication was that a growing phenomenon, Americans cashing in the equity in their homes to pay off credit cards and buy cars and vacations, presented few risks for lenders or consumers.

But other observers looking at the same data see a darker picture-of an accident waiting to happen, particularly when the economy sours.

"At some point there will be a hangover" from these second mortgages, said analyst Jonathan Gray of Sanford Bernstein & Co.

"The pumping of large volumes of debt into the consumer sector secured by residences reduces the consumer sector's equity in the housing stock," Mr. Gray said, and makes homeowners more likely to walk away from loans if they are under financial stress.

Indeed, all creditors could be adversely affected, as households have less of an equity cushion to fall back on, said Mark Zandi, chief economist at Regional Financial Associates, West Chester, Pa.

"Households can't turn to their homes in times of trouble-in times of medical problems or unemployment," Mr. Zandi said.

But if priced properly, home equity loans are good business, Mr. Gray added.

Two thirds of the 40 lenders surveyed by the CBA offered home equity loans that, when added to the first mortgage, left homeowners with no equity in their homes.

Six percent of lenders offered loans up to and even exceeding 125% of the home value.

It's this fast-growing trend of loans that exceed the home value that most worries Christine O. Clifford, vice president of David Olson Research, a Columbia, Md., firm that studies the home equity market. "I'm continually surprised by how aggressive lenders are in their underwriting. Everybody is looking for the next niche," Ms. Clifford said. Though lenders insist the loans are to affluent people with high credit scores, Ms. Clifford is wary. "If there is a long recession that is multiregional, they'd really have problems," she said.

Experience with home equity loans that exceed the value of the home-the government's Title I home improvement loans-isn't encouraging. Losses equaling 10% of total loans aren't uncommon, Ms. Clifford said. To be sure, not everyone is sounding alarms-particularly for loans to the A-credit borrowers most banks serve.

"A lot of these people have good jobs, healthy cash flows, and not much debt other than mortgages or cars. They could probably qualify for unsecured debt anyway," said Sung Won Sohn, chief economist at Norwest Corp.

Still, he concedes that keen competition for consumer credit may be leading some lenders to lower their standards. That could lead to credit problems like those now faced by subprime and credit card lenders. Delinquencies and foreclosures-though well below credit card levels-have risen steadily on home equity loans in recent years. In 1994, 0.98% of home equity lines of credit were delinquent. In 1996, 1.37% of these credit lines were delinquent.

Of closed-end home equity loans, in which homeowners receive a lump sum payout, 2.26% were delinquent last year, compared with 1.4% in 1994.

Foreclosures tell a similar story. Lenders foreclosed on 0.25% of lines of credit in 1996, against 0.14% in 1994, and on 0.87% of closed-end loans in 1996, up from 0.09% in 1995. (The trade group did not calculate foreclosures on closed-end loans in 1994.)

On average, borrowers had borrowed 83% of their available home equity line of credit when lenders foreclosed last year-a jump from 63% just the year before.

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