Banks, thrifts, and finance companies that make home equity loans are seeing a shift in favor of lines of credit and away from closed-end loans, according to a recent study.

In fact, 82% of lenders surveyed in the Consumer Bankers Association's annual home equity study reported an increase in line of credit lending. The reporting companies lend mainly to borrowers with strong credit records.

Home equity lines of credit, which allow the borrower to withdraw equity slowly over time, are preferred by consumers because of their flexibility, said Fritz Elmendorf, vice president at the association.

They also present more risk for the lender because they allow the borrower to control their loan size, said Richard DeMong, director of the Center for Financial Service Studies at University of Virginia, which compiled the data.

Almost all lines of credit carry a variable interest rate, the study said. Three-quarters of the lenders surveyed use the prime rate published in The Wall Street Journal as the index for setting their interest rate on equity lines.

Fees increased slightly in 1995, the survey said, as did the percent of lenders charging fees for various loan processing activities.

Despite increasing competition, the study reports that lending standards have remained fairly tough, and the typical borrower's creditworthiness has improved steadily in the past nine years.

In addition, the average equity-line borrower had a household income of $57,467, up 3% from the year before, the study found.

One negative: Loan-to-value ratios are creeping upward, to an average of 87.2% for lines of credit and 87.5% for closed-end loans.

In addition, more lenders are also making 100% loan-to-value home equity loans. This could be a dangerous trend, Mr. DeMong cautioned. "You've got very little leeway there, if real estate values drop," he said.

Most people are taking out home equity loans to consolidate their debt, the study found. Until three years ago, the primary reason for taking out a second mortgage was to do improvements on the home.

Borrowers continue to prefer checkbooks as method of access to their lines of credit.

Home equity lending now represents more than half of all consumer credit, excluding consumer credit cards, the study found.

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