La Ware Sees Risks in Home Equity Loans

By Roosevelt, Phil | American Banker, March 10, 1992 | Go to article overview

La Ware Sees Risks in Home Equity Loans


Roosevelt, Phil, American Banker


ARLINGTON, Va. -- Just when bankers were daring to feel better about a slowdown in mortgage and credit card delinquency rates, a senior regulator has issued a warning about home equity loans.

Federal Reserve Board Governor John LaWare voiced concern Monday about the credit quality of the loans, which are among the fastest growing assets on banks' books.

"While the recent record has been reasonably good and the business still offers real opportunities for banks, there are some emerging trends that may deepen the worry wrinkles on regulators' faces," he told delegates at a home equity conference sponsored by the Consumer Bankers Association.

'Unemployment Insurance'

Mr. LaWare cited significant declines in home prices in some markets, heavy consumer loans accumulated in the 1980s, and a tendency of consumers to draw on equity lines of credit after losing jobs.

"It is sometimes used like unemployment insurance," he said. "That kind of use materially increases the risk profile of a particular line, and the lender is not always aware in time to freeze the line and cut losses."

His concerns about the use of home equity loans by the unemployed were underscored by Ken Quincy, chief of compliance and special review section of the Federal Deposit Insurance Corp.

"That's really a scary area," he said, pointing to the mounting debt load on people unable to pay. "When [the line] runs out, then what happens? …

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