Cracks are beginning to appear in the nation’s book of junior lien credit lines, and the problem could grow.
Nearly half — or 48 percent — of all second-lien home-equity lines of credit that are outstanding were originated between 2004 and 2006.
The vast majority of 2004, 2005 and 2006 vintage HELOCs have draw periods that last for 10 years.
That means that many HELOCs are set to start amortizing over the next several years.
But a report from Lender Processing Services indicates that pre-2004 HELOCs have already seen an increase in problem loans as payments become fully amortizing and increase.
The increase in problems is an indication of more delinquencies ahead.
“In the aggregate, the home equity market is experiencing lower delinquencies,” LPS Senior Vice President Herb Blecher said in the report. “However, among the HELOC population that has already begun amortizing, we are actually seeing an increase in new seriously delinquent loans.”
Blecher warns that with only 14 percent of HELOCs having hit the decade mark, a huge segment of the market is at risk of payment increases.
“If this trend toward post-amortizing delinquencies carries over, we could be looking at significant risk to the home equity market over the coming years,” he said.
