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Fitch Says Home Equity Loan Portfolios Will Lose Big In 2010

[Jun 19, 2010.]


Home Equity Loan Portfolios Expected To Lose $65 Billion

One of the leading sources of information for bankers and investors is Fitch Ratings. Fitch is a global company committed to independent research about credit markets. This week Fitch released information regarding losses expected from home equity loans. US banks will likely lose about $65 billion in 2010 in their home equity portfolios. [related article] This figure is more than double last year's loss of $31 billion.

Fitch's information comes from a survey of 20 publicly traded banks that account for over 60% of the total outstanding junior liens, including home equity loans.

Loan Losses Result of Evaporating Home Values

Since the peak of home values in 2006, home equity has evaporated in many regions of the country. Home equity loans and home equity lines of credit that were made based on peak values are often now without collateral. For example, a home that was valued at $300,000 at the peak could have a $240,000 first mortgage and a $35,000 second mortgage. If that home has lost 30% of its value, it would be worth $210,000, leaving the first mortgage under-collateralized and the second mortgage unsecured completely. When a home in such a position is sold as either a foreclosure or a short sale, the home equity lender may take a total loss.

Current Home Equity Loan Statistics

  • In 2009, FDIC-insured banks held a total of $842 billion of junior liens including home equity loans. That's about 12% of total gross loans.
  • The highest levels of home equity loans in danger of being charged-off can be found at major banks such as JPMorgan Chase, Bank of America, and Wells Fargo. Each of these banks have reported a declining trend year over year.
  • The number of home equity loans and home equity lines of credit that are at least 30 days past due has declined at most of the major banks. This could signal the begining of stabilization.
  • Home equity loans made today are not based on peak values. New junior liens being added to bankers' portfolios will likely perform with fewer delinquencies.

Apply for a new home equity loan today.


About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.

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