19% of Active HELOCs Are Scheduled to Reset in 2017

This month, Black Knight took a closer look at home equity lines of credit (HELOCs), particularly on the share of HELOCs with draw periods – typically a 10-year term of interest-only payments before payments become fully amortizing – ending in 2017. Accounting for just under $100 billion in outstanding unpaid principal balances (UPB), these HELOCs represent the last of the pre-crisis lines of credit – those originated from between 2004 and 2007. As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, as draw periods end and HELOCs reset with new payments, borrowers can face very different monthly obligations.

“In 2017, 19 percent of active HELOCs are facing reset,” said Graboske. “This is the largest share of active HELOCs facing reset of any single year on record, although the approximate 1.5 million borrowers slated to see their HELOC payments increase this year is about 100,000 fewer borrowers than in 2016. With the lines beginning to reset this year and early into 2018, we’re seeing the last of the pre-crisis-era HELOCs that the industry has been focusing on since early 2014. After deceleration in early 2018, we will have a lull of several years in reset activity. On average, borrowers facing resets this year are looking at a ‘payment shock’ of about $250 per month over their current HELOC payments – more than doubling their current payments, in fact. Historically, those increases have impacted HELOC performance significantly; delinquency rates of 2006 vintage HELOCs – which reset last year – jumped by 74 percent. That was marginally lower than the 2004 and 2005 vintages, which saw delinquency rates rise by 90 and 88 percent, respectively. Payment shocks remain high for lines resetting in 2018 but then drop along with the overall volume of resets in 2019.

“One thing that’s working in the 2007 vintage HELOCs’ favor has been the equity and interest rate environment of the last year. Rising home prices and low interest rates throughout 2016 have allowed borrowers to be much more proactive than in years past in terms of paying off or refinancing their lines to avoid increased monthly payments. For those still facing resets, however, equity continues to be a struggle. One-third of borrowers whose HELOCs will reset in 2017 have less than 20 percent equity in their home, making refinancing problematic. One in five have less than 10 percent, and one in 10 are actually underwater. Even that reflects improvement in home prices, though; last year 45 percent of borrowers facing reset had less than 20 percent equity and nearly 20 percent were underwater.”