Home Equity Loans
As Alternative to Refinancing;
Banks Aggressively Push Them
Risks of Monthly Adjustment
By RUTH SIMON
Staff Reporter of THE WALL STREET JOURNAL
June 9, 2004
At J.P. Morgan Chase & Co., home-equity volume climbed 51% in the first quarter of 2004 compared to the previous year
Both Wells Fargo & Co. and National City Corp. say their home-equity business set records in March and April
Lenders are expected to originate a record $370 billion in total home-equity loans and lines of credit this year
David Lauster, a real-estate agent in Orlando, Fla., is using a $90,000 home-equity line to finance the purchase of an investment property. "I didn't have cash accessible for a down payment anywhere else," says Mr. Lauster, who figures the value of his home has climbed 30% since he bought it for $310,000 16 months ago
But because rates typically adjust monthly, borrowers will see their payments rise soon after the Federal Reserve begins raising short-term rates. "The quicker the Fed moves, the more the line-of-credit borrower will feel it," says Greg McBride of Bankrate.com.
In a recent report titled "Home Equity Loan Bubble?" Prudential Equity Group chief investment strategist Edward Yardeni wrote that "more and more Americans may use [home-equity loans] to finance a lifestyle they may be unable to support on their incomes alone."
Last year, the Office of the Comptroller of the Currency assembled a special task force to look at the issue. It found that lenders had loosened their lending standards and "need to sharpen their risk-management practices," says Barbara Grunkemeyer, deputy comptroller for credit risk. |
