The majority of traditional home equity lenders are maintaining high standards for loan quality despite heavy competition, a new study shows.
Home equity loan borrowers that qualify for traditional "A-quality" loans are wealthier and more mature than ever before, the study by the Consumer Bankers Association indicates.
The association's 1997 home equity study reports that average household income for borrowers taking out home equity credit lines increased 13% from 1995 to 1996. Borrowers' average number of years on the job and years in their home remained fairly constant, and they aged slightly, it reported.
In fact, 1996 was the first time in the study's 11-year history that the number of borrowers aged 50 to 64 increased, said Richard F. DeMong, director for financial service studies, University of Virginia. The study was conducted by the University of Virginia's McIntire School of Commerce, Charlottesville.
"The baby boomers are growing up," Mr. DeMong said.
The net effect of these trends is that "borrowers remain a good credit risk," the study said. "It is also noteworthy that the credit worthiness of home equity borrowers has increased in the last ten years."
The survey includes responses from 41 banks, thrifts, mortgage companies, and finance companies with assets over $100 million. The lenders surveyed account for more than $54 billion in outstanding home equity loans.
The vast majority of those responding do not lend to borrowers with less than perfect credit, the association reports.
Home equity lending to borrowers with blemished credit records has boomed in recent years as finance companies fueled by capital from IPOs have tried to pull in more volume. But the feeding frenzy has barely affected traditional home equity lenders, Mr. DeMong said.
The study breaks home equity loans into two categories-home equity lines of credit, or Helocs, which allow borrowers to draw down the equity in their home in increments; and closed-end loans, which pay out equity in a lump sum.
The credit lines have surged in popularity in recent years as consumers have looked for more financial flexibility. Many lines allow customers access to the equity in their home through a checkbook or an ATM machine.
Despite the improvement in borrower wealth and maturity, delinquency rates for both types of home equity loans rose slightly in 1996.
About 1.37% of all home equity credit lines were delinquent last year, versus 1.16% in 1995. Closed-end loan delinquencies jumped 99 basis points from the 1995 level, to 2.26%.
Mr. DeMong said the increase reflects the uptick in delinquencies in consumer lending overall, not a problem specific to home equity borrowers.
High-loan-to-value home equity lending is gaining popularity, the survey reports.
Almost 66% of all lenders now offer a 100% loan-to-value product, and 3% offer loans for more than 100% of a home's value.