Academic journal article ABA Banking Journal

Home Equity Lines - a Rising Star?

Academic journal article ABA Banking Journal

Home Equity Lines - a Rising Star?

Article excerpt

Home equity lines of credit are growing rapidly, they're profitable, and they have relatively low rates of losses and delinquencies, according to an ABA survey.

The study, 1991 Home Equity Lines of Credit Report, is based on the responses of 550 banks that offer the product. (Some data in the report were compiled from commercial banks' Reports of Condition and Income.) Most of the respondents were community banks, and all responses were based on 1990 results. Highlights follow.

More than 40% of all banks offer the lines of credit and outstandings grew 20.9% last year, according to bank call reports. One reason for the growth, the report suggests, is that home equity loans and lines of credit are the only types of consumer credit that are still tax deductible. The median variable interest rate was 11.75% and the median fixed rate was 12.20%.

Respondent banks were more cautious last year about who they gave these lines of credit to. Only 64% of applications processed were closed. This percentage is down from the previous year, which may be attributable to some erosion of credit quality on applications, and to bankers applying tougher credit standards on HEL applications, " the report states.

The most common fees charged for home equity lines of credit in 1990 were appraisal fees (typically $150) and recording fees (typically $15), which were both charged by 70%-75% of banks. About half of all banks charged for title insurance usually $150), 37% charged for title searches usually $75), and one-third charged for annual maintenance (about $35). …

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