Home equity lines of credit begin to rebound
Home equity lines of credit, which soared in popularity during the housing boom but faded as residential real estate values crashed, are starting to make a comeback.
The growing number of consumers taking out loans secured by their homes is being driven by several factors, but chief among them is that home prices finally have stabilized in the slowly improving economy, bankers and analysts said.
“It's clearly a reflection of the economy,” said Thomas R. Homberg, leader of the financial institutions practice group at the Milwaukee law firm Godfrey & Kahn. “Housing has rebounded, and you see consumers out there buying things.”
Nationally, home equity lines of credit by banks peaked at $668 billion in 2008, just as the recession was about to dig in and an overheated housing market was beginning its collapse. By 2012, they had decreased by 17 percent to $554 billion, according to the Federal Deposit Insurance Corp.
But some banks are advertising home equity lines of credit again, often with low introductory interest rates. Home equity lines of credit are revolving lines of credit in which the borrower's house serves as collateral. The interest rate normally is variable, tied to an index.
During the housing bubble, when many lenders and investors mistakenly assumed residential real estate values would keep appreciating, some consumers overused the equity in their homes to buy whatever they wanted — from cars to home improvements to vacations — and supported a lifestyle their incomes could not. It ended in financial hardship, if not ruin.
Lending standards have tightened since then, said Greg McBride, a financial analyst with Bankrate.com
“The home equity loans and lines of credit that lenders are looking to issue now require the borrower to retain typically a 20 percent equity stake, so there's a sufficient margin of safety there,” McBride said. “It's much different from the go-go days of the housing boom, when borrowers were borrowing against the last nickel of equity in the house.”
Although financial institutions have been criticized by politicians for not doing enough lending since the recession, the problem for banks has been finding qualified borrowers who are reasonably certain to pay the money back, McBride said. As the economy improves and people and businesses become more confident in their financial position, borrowing should increase.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Credit card use reflects confidence, flat wages
- Tourists rush to visit Cuba before American influence felt
- Aggressive drivers to face Progressive surcharges
- Compassion fatigue’ can damage caregivers’ health
- Falling demand for steel not likely to reverse any time soon
- Reliable family car feels upscale
- Heinz merging with Kraft in mega-deal; headquarters to stay in Pittsburgh
- Economy in steady, but poky expansion
- Dow Chemical, Olin in $5B cash-and-stock deal
- Internet ‘one road in and out’ for rural users
- Password problems soon to be nothing but a bad memory