A recent analysis of banking trends indicates the sector's mortgage exposure is rising.
Outstanding home-equity lines-of-credit surged about 42% in 2004 to nearly $491 billion at banks insured by the Federal Deposit Insurance Corporation, A.M. Best Co. said in the first of a series of articles about statistical studies and trends in banking. HELOCs rose at an annualized rate of 17% in the first half of 2005 to $534 billion.
While nontraditional mortgages account for a small share of residential loans currently outstanding, the share of these originations during the past few years has accelerated, especially in high-priced markets, enabling some borrowers to purchase properties that they otherwise couldn't, the report said.
Significant home price appreciation over the past few years pushed interest-only production past 50% of purchase mortgages originated during the first half of 2005 in some markets, A.M. indicated.
The expansion in outstanding balances and the popularity of nontraditional mortgages assisted in real estate exposures increasing to nearly 50% of total bank assets as of Sept. 30, 2005, from 45% at yearend 2002, according to the article.
Meanwhile, one- to four-family residential loans grew by 3 percent to 24% of total assets in that same almost-three-year period. The growth rate of single and multifamily loans has showed signs of slowing amid a rising rate environment to 14% as of the end of the third quarter from 19% as of yearend 2004, A.M. said.
Home price appreciation also exhibited some slippage in the third quarter, when compared with the prior quarter, notably in the Pacific and New England states.