Recent developments in home equity lending - includes related articles on consumer satisfaction survey and estimate of aggregate debt

Federal Reserve Bulletin, April, 1998 by Glenn B. Canner, Thomas A. Durkin, Charles A. Luckett

Note. Data have been weighted to ensure the representativeness of the sample.

(1.) Excludes those who have only a home equity line of credit.

(2.) Home equity consists of the market value of the home less all debts secured by the home, including balances outstanding on equity lines of credit and traditional home equity loans.

Source: Surveys of Consumers, 1997.

The relatively strong financial positions of households having home equity debt and especially lines of credit is reflected in banking industry statistics on loan delinquency rates (data not shown in tables). According to the American Bankers Association, fewer than I percent of home equity lines of credit at banks are typically in delinquent status, the lowest rate for any category of loan, and the delinquency rate on traditional home equity loans has averaged around 1 1/4 percent recently, the second lowest figure of any loan category. By comparison, about 3 1/2 percent of credit card accounts and personal loans were past due. When delinquency rates are based on dollar amounts rather than number of loans, the rates on home equity lines of credit and traditional home equity loans are both around 1 1/4 percent, still lower than for any other type of loan. In recent ABA reports, a bit more than 5 percent of bank credit card debt was delinquent.

The survey data show some regional differences in the use of home equity products: Homeowners residing in the North Central region are the most likely to have a home equity loan, particularly a home equity line of credit.(9) This geographic distribution differs from that in the 1993-94 survey, which found homeowners in the Northeast to be the most frequent holders of home equity loans. Change in the regional pattern may reflect the relatively strong growth in home prices (and hence, equity) in the North Central region during the period.

Amounts Borrowed

One important attraction of home-secured financing is that it allows homeowners to borrow relatively large amounts. In addition, as described below, many homeowners with lines of credit have substantial amounts available in the unused portions of their lines.

Users of home equity lines of credit and traditional home equity loans differ little in the amounts they have borrowed (table 7). On average, credit line users (that is, those who have an outstanding balance on their line of credit) owe only a bit more than users of traditional home equity loans, and the median amounts outstanding are the same.

7. Status of home equity debt, 1993-94 and 1997

Percent except as noted

                                1993-94
Item
                           Lines     Traditional
                         of credit     loans

Outstanding balance
(dollars)
1-9,999                       34           42
10,000-24,999                 38           40
25,000 or more                28           19
Total                        100          100

Memo: Dollar balance
Mean                      18,459       16,199
Median                    15,000       11,000

Percentage of credit
line in use
1-19                          12        ...
20-49                         19        ...
50-74                         36        ...
75-100                        33        ...

Memo: In use (percent)
Mean                          58        ...
Median                        62        ...

                                 1997
Item
                             Lines     Traditional
                           of credit      loans

Outstanding balance
(dollars)
1-9,999                         35           29
10,000-24,999                   35           48
25,000 or more                  30           23
Total                          100          100

Memo: Dollar balance
Mean                        20,155       17,956
Median                      15,000       15,000

Percentage of credit
line in use
1-19                            14        ...
20-49                           33        ...
50-74                           23        ...
75-100                          30        ...

Memo: In use (percent)
Mean                            53        ...
Median                          55        ...