Search

HELOC Resets Still a Concern

by devteam September 3rd, 2014 | Share

Home Equity Lines of Credit or HELOCs are one arearnof focus of the July Mortgage Monitor</iissued by Black Knight Financial Services on Tuesday.  The company said there is still concern aboutrnpossible payment shock for homeowners with HELOCS as the millions put in placernduring the housing boom reset and begin to amortize.</p

Black Knight estimates that at least 2.5 millionrnborrowers face these resets over the next three years.  At that point the period during whichrnborrowers can draw down on their home equity through these loans will end andrnthe loans will convert from an interest only payment schedule to a fullyrnamortizing one.  The average increase inrnpayments is estimated at $250 per month. rn</p

Accordingrnto Kostya Gradushy, Black Knight’s manager of Research and Analytics, thisrnaverage could increase if homeowners continue to draw on their HELOCS untilrnthey reset.  “Black Knight’s analysis ofrnoutstanding HELOCs that have yet to reset is based upon current utilizationrnratios,” said Gradushy. “Currently, borrowers whose HELOCs will reset over thernnext three years are utilizing just under 60 percent of their available credit.rnFurther draws on these lines – for those that have not been locked – couldrnresult in ‘payment shock’ after they are reset that is even higher than thernnational average of $250 per month. Looking further down the road, HELOCs notrnlikely to reset until 2019 arernexhibiting even lower utilization ratios – about 40 percent of availablerncredit. Upon reset, those borrowers are currently facing average monthlyrnincreases of $200. Should their drawing pattern match that of older vintages,rnwe could be looking at a significantly higher risk of ‘payment shock’ for thisrnsegment.”</p

</p

BlackrnKnight’s preview of Mortgage Monitor</idelinquency data, released last week, showed a general downward trend inrndelinquencies and foreclosure activity with the delinquency rate down 1.13rnpercent month-over-month and the foreclosure inventory dropping by 1.85rnpercent.  The full Monitor data released today also showed continued improvement inrnnew problem loans.  At a rate of 0.6rnpercent of all active loans, these new delinquencies are now firmly back torn2005-2006 levels.  </p

</p

The pattern of dropping rates of newrndelinquencies is also being observed in loans other than first mortgages.  Rates of new problem loans among HELOCs andrnother junior liens are also at multi-year lows</p

</p

“Roll rates” (the number of loansrnthat shift from current into progressively more delinquent statuses) have beenrnimproving over the long term across all categories. Black Knight has observedrnroll rates increasing on loans shifting from 60 to 90 days delinquent and fromrn90 days to foreclosure over the last four months. It should be noted, however,rnthat nearly 75 percent of 90-day defaults and almost 80 percent of foreclosurernstarts are from loans originated in 2008 and earlier.</p

</p

</p

Gradushyrnsaid Black Knight also looked at bank home retention activity and found thatrncurrent levels have declined along with delinquencies and foreclosures.  However they also found that retentionrnactivity is still high relative to current levels of distressed loans.  “Onrna state-by-state basis, home retention activity does not always correlate withrnthe amount of distressed inventory. Such activity is much higher, for example,rnin California – where nearly 12 percent of distressed loans were the focus ofrnsome form of retention efforts – than in any of the other states in the toprnfive ranked by distressed inventory. In contrast, in the other four states inrnthe top five (Fla., N.Y., N.J. and Ill.) just over six percent of loans on averagernsaw home retention actions,” Gradushy said.</p

</p

</p

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of MortgageNewsDaily.com is prohibited.

About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

See all blogs
Share

Comments

Leave a Comment

Leave a Reply

Latest Articles

Real Estate Investors Skip Paying Loans While Raising Billions

By John Gittelsohn August 24, 2020, 4:00 AM PDT Some of the largest real estate investors are walking away from Read More...

Late-Stage Delinquencies are Surging

Aug 21 2020, 11:59AM Like the report from Black Knight earlier today, the second quarter National Delinquency Survey from the Read More...

Published by the Federal Reserve Bank of San Francisco

It was recently published by the Federal Reserve Bank of San Francisco, which is about as official as you can Read More...