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Home equity loans decline at the largest bank lenders in Q4'19

Home equity loans at U.S. banks and thrifts declined in the fourth quarter of 2019, continuing a yearslong trend.

At the end of December 2019, U.S. banks and thrifts reported $383.81 billion in home equity lines of credit and junior mortgage liens, a 2.3% drop from the third quarter and an 8.7% decline from the end of 2018. Total home equity lines of credit and junior mortgage liens peaked at $894.27 billion in the fourth quarter of 2008 and have been declining ever since.

Meanwhile, the percentage of home equity lines of credit that were delinquent or in nonaccrual status fell to 2.3% as of Dec. 31, 2019, compared to 2.4% at the end of September and 2.9% a year earlier. The delinquency rate for closed-end junior liens was 3.0% as of Dec. 31, 2019, unchanged from the previous quarter and down from 3.6% at the end of December 2018.

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In anticipation of the economic fallout brought by the coronavirus pandemic, the Federal Reserve announced two rate cuts earlier in March, bringing rates back down to crisis-era lows. However, given the history of the last 11 years, lower rates will likely trickle down to home equity products, but with fixed-rate mortgages offering even lower rates, many borrowers will opt for a fixed-rate cash-out mortgage refinance instead.

Bank of America Corp., the largest U.S. home equity lender among banks and thrifts, reported $40.73 billion in home equity loans and lines of credit as of Dec. 31, 2019, a $1.26 billion drop quarter over quarter and a $7.48 billion year-over-year decline. In the company's latest Form 10-K, BofA attributed the decline in 2019 to paydowns and $2.0 billion in loan sales, which outpaced new originations.

Truist Financial Corp., the product of the giant merger of equals between BB&T Corp. and SunTrust Banks Inc., became the fourth-largest home equity lender in the industry after the merger was completed in December. However, home equity loans and lines of credit still dropped 3.01% quarter over quarter from the combined amount held at BB&T and SunTrust at the end of September 2019.

All told, all of the largest lenders saw total home equity loans and lines of credit decline in the fourth quarter.

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