NEW YORKâMore homeowners are missing payments on home equity lines of credit as the loans reprice a decade after booming in the lead-up to the mortgage crisis.
According to the Wall Street Journal, many of those loans had terms with interest-only payments for the first 10 years, before terms adjusted to begin including principal payments for the remainder of their terms. Roughly 840,000 HELCs taken out in 2006 are resetting this year, with principal payments on an additional nearly one million loans expected to hit in 2017, according to The Wall Street Journal.
Citing Equifax data, the Journal said borrowers who signed up for HELCs in early 2006 were at least 30 days late on $2.8 billion of balances four months after principal payments kicked in this year. That represents 4.4% of the balances on outstanding 2006 HELCs. Delinquencies were at 2.9% before the reset, Equifax reported.
The Wall Street Journal noted that resets can lead to payments jumping by hundreds, or in some cases thousands, of dollars a month. The publication further cited reports from BofA, JPMorgan Chase and Citigroup, all of which reported higher HELC delinquency rates during the second quarter. The banks have indicated delinquency rates could rise further.
Some banks, added the Wall Street Journal, have taken additional steps to lessen risk. Wells Fargo and BofA no longer permit interest-only payments on new HELCs given to most borrowers.
While delinquencies for HELCs are rising, charge-offs are also up. The Equifax data also shows that big banks have written off 1.4% of defaulted balances from 2006 HELCs so far this year, up slightly from a year prior.