Black Knight: ‘Final Wave' of Pre-Crisis HELOCs to Reset This Year

Mike Sorohan msorohan@mba.org

May 02, 2017


Black Knight Financial Services, Jacksonville, Fla., said more than 1.5 million home equity lines of credit will see interest-only draw periods end in 2017, representing the final wave of pre-crisis home equity lines.

The company's monthly Mortgage Monitor report said the total represents 19 percent of active HELOCs, representing just under $100 billion in outstanding unpaid principal balances, or an average of $62,500 per line of credit. Black Knight said the 2017 totals are 100,000 less than in 2016.

The report said on average, HELOC borrowers whose lines reset in 2017 will see payment increases of $250 per month, more than doubling current average monthly payments. One in five borrowers facing HELOC resets in 2017 have less than 10 percent equity in their homes; this represents a decline from 31 percent of borrowers facing resets last year

Black Knight Executive Vice President Ben Graboske said these HELOCs represent the last of the pre-crisis lines of credit, originated from between 2004 and 2007. He said as draw periods end and HELOCs reset with new payments, borrowers can face very different monthly obligations.

"Historically, those increases have impacted HELOC performance significantly," Graboske said. "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."

Graboske noted one factor working in favor of these 2007 vintage HELOCs 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," he said. "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."

Other key report data:

--Total U.S. loan delinquency rate: 3.62 percent, a 14.08 percent decline from the previous month.

--Total U.S. foreclosure pre-sale inventory rate: 0.88 percent, a drop of 4.60 percent from the previous month.

--States with highest percentage of non-current loans: Mississippi, Louisiana, Alabama, New Jersey and West Virginia.

--States with lowest percentage of non-current loans: Idaho, Montana, Minnesota, North Dakota and Colorado

--States with highest percentage of seriously delinquent loans: Mississippi, Louisiana, Alabama, Arkansas and Tennessee.

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