Banks Pulling Back on Home Equity Loans

Washington, DC, July 7, 2008--The delinquency rate on home-equity lines of credit rose to its highest in more than a decade during the first quarter, according to the American Bankers Association.

Higher food and gas prices, declining stock prices, and little income growth, have made it more difficult for people to manage their debt, said James Chessen, ABA's chief economist.

That caused the percentage of HELOC accounts more than 30 days past due to reach its highest rate since 1997.

But it isn't late payers who are having trouble with their home-equity lines these days. Many borrowers with strong credit histories, a good amount of equity in their homes and decent income streams have had their HELOC limits cut, especially in areas where home values have fallen the most.

"It was a tough quarter for some people," Chessen said. "Faced with rising food and gas prices and little income growth, fewer resources have been available to manage debt."
He added that delinquencies will, in all likelihood, remain elevated.