Home-Equity Borrowing Stalls

Home-Equity Borrowing Stalls

A cooling housing market and higher interest rates have made homeowners more reluctant to tap the equity they may have built up in their residences. The amount borrowers owe on their home-equity lines of credit has slipped in the past six months, to $561 billion at the end of March, the first such decline since 1999.

During the housing boom, demand for home-equity lines of credit climbed sharply as property values rose, interest rates fell and lenders made it easy for borrowers to tap their equity for everything from home improvements to vacations.  Now, the slowdown in home-equity borrowing is leading to weaker sales in some markets for autos, building materials and electronics, says Mark Zandi, chief economist of Economy.com.

Delinquencies on home-equity lines of credit also have climbed, to 1.29% in the first quarter, according to a separate study by Equifax and Economy.com.  That's up from 0.8% a year earlier and the highest level since early 2002.  Partly as a result, lenders are tightening their standards. That in turn is making it tougher for some borrowers to get so-called piggyback mortgages, which combine a mortgage with a home-equity loan or line of credit and allow borrowers to finance more than 80% of a home's value without paying mortgage insurance.

If you don't already have a home-equity line of credit, expect the qualifications to get one to be a lot tougher today than it was this time last year.  Lenders are not looking to do 100% financing for people with less than stellar credit anymore.