Magazine article American Banker

As Refis Flagged, Banks and Thrifts Stocked Up on Home Equity Loans

Magazine article American Banker

As Refis Flagged, Banks and Thrifts Stocked Up on Home Equity Loans

Article excerpt

Bank and thrift companies increased their holdings of home equity loans 26%, to $176.5 billion, in the 12 months that ended June 30, according to American Banker research.

The increase was even bigger for the top 100 banks and thrifts. Their portfolios of second mortgages and home equity lines of credit jumped 28%, to $163 billion.

Experts said the boost was largely driven by this year's rise in interest rates. According to Freddie Mac, the average 30-year fixed mortgage rate in the second half of 1998 was 6.82%; in the first half of this year it was 7.05%. That has heightened demand for home equity products among consumers who might otherwise have refinanced their first mortgages and taken out cash.

"When rates go up and people need money for debt consolidation or additions or remodeling, they're not going to refinance the 6.75% mortgage they took out last year with a 7.5% mortgage," said Michael McMahon, an analyst at Sandler O'Neill & Partners. "They're going to get a home equity line of credit."

Home equity is an attractive way to consolidate debts because the payments are tax-deductible. But during last year's historic mortgage refinance boom, many consumers refinanced their second mortgages and home equity lines along with their first mortgages, causing home equity portfolios to run off.

This year, with rates rising, "the refinance boom has leveled off, so even if originations (of home equity loans) are flat, the portfolios grow faster," said William Cooper, chief executive officer of TCF Financial of Minneapolis.

BankAmerica Corp.'s portfolio shrunk 3.07% but remained the largest in the industry, at $19 billion. The Charlotte, N.C. giant was followed closely by Bank One Corp., with $13.5 billion, and Wells Fargo & Co., with $12.4 billion.

The biggest gainers included: Bank of Montreal, with a 181% portfolio jump, to $1.08 billion; Associated Banc-Corp. of Green Bay, Wis., with a 86.5% surge, to $1.17 billion; and Bank of Tokyo-Mitsubishi, which had growth of 85.6%, to $1.2 billion. (See tables on pages 12 and 13.)

American Banker based its rankings on data from Federal Deposit Insurance Corp. regulatory call reports. …

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