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Declining interest rates no remedy for falling home equity loans in Q3'19

U.S. banks and thrifts reported $392.76 billion in home equity lines of credit, or HELOCs, and junior liens at the end of September, down 2.4% from the second quarter and 8.1% from the year-ago quarter.

However, credit quality continued to improve. The share of home equity lines of credit that were delinquent or in nonaccrual status shrunk to 2.4% as of Sept. 30, from 2.6% at the end of June and 3.0% at the end of September 2018. The delinquency rate for closed-end junior liens also fell to 3.0% as of Sept. 30 from 3.3% in the previous quarter and 3.8% a year earlier.

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HELOCs peaked at $894.27 billion in the fourth quarter of 2008 and have been declining ever since.

For the third time this year, the Federal Reserve made a 25-basis-point rate cut on Oct. 30, following rate reductions in September and July. U.S. banks and thrifts also lowered interest rates on home equity products, but that still seems to have had little effect on demand for loans. The industry average HELOC rate was 5.43% for the week ended Dec. 6, down 44 basis points from six months earlier, and 18 basis points from the previous year.

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With $41.99 billion in home equity loans and lines of credit as of Sept. 30, Bank of America Corp. led the industry, even as its home equity loan portfolio fell $2.41 billion quarter over quarter and $9.06 billion year over year. In the company's third-quarter Form 10-Q, Bank of America attributed the decline in 2019 to paydowns and $1.9 billion in loan sales, which outpaced new originations. BofA's home equity delinquency ratio dropped 147 basis points quarter over quarter to 2.00% as of Sept. 30, easily the largest improvement among the top 20 lenders.

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