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Home equity loans fall 8.3% YOY in Q1’19

At the end of March, the U.S. bank and thrift industry reported $409.65 billion in home equity lines of credit and junior liens, a 2.6% drop from the previous quarter and an 8.3% decline from the first quarter of 2018.

Overall credit quality has continued to improve. The percentage of home equity lines of credit that were delinquent or in nonaccrual status fell to 2.8% as of March 31, compared to 2.9% at the end of December 2018 and 3.1% at the end of March 2018. Meanwhile, the delinquency rate for closed-end junior liens was 3.5% as of March 31, down from 3.6% at the end of 2018 and 4.2% a year earlier.

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Home equity lines of credit, or HELOCs, peaked at $894.27 billion in the fourth quarter of 2008 and have been declining ever since.

U.S. banks and thrifts have been steadily raising interest rates on home equity products, largely keeping pace with the Federal Reserve’s rate hiking cycle. Since December 2017, the Federal Open Market Committee has raised its target for the federal funds rate by a combined 125 basis points, including a 25 basis point increase announced in December 2018.

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Bank of America Corp. led the industry with $46.44 billion in home equity loans and lines of credit as of March 31, although this was a $1.78 billion drop quarter over quarter and an $8.63 billion drop year over year.

TD Group US Holdings LLC, the ninth-largest U.S. home equity lender among banks and thrifts, reported a $240.1 million decline in home equity loans during the first quarter, and the bank’s delinquency ratio dropped by 226 basis points to 5.2%. Delinquent home equity loans at TD Group US, Toronto-Dominion Bank's U.S. subsidiary, totaled $438.7 million at the end of the first quarter, a 32.3% drop compared to the end of 2018.

During Toronto-Dominion Bank's May 23 earnings call, Gregory Braca, the company's head of U.S. banking, said the bank’s home equity loans have dropped as interest rates have increased because customers are refinancing into permanent or fixed-rate mortgages.

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