The Urban Institute hosted a data talk on the past and future performance of home equity lines of credit (HELOCs). HELOCs and closed-end second liens exacerbated the number of foreclosures during the Great Recession. Some have speculated that there could be a second wave of defaults as home equity loans, many of which had 10-year interest-only periods, begin to amortize.
CoreLogic’s Sam Khater reviewed his work on the size of the HELOC market, the size of anticipated payment increases, and the impact those increases will have on HELOC performance.
Donghoon Lee, of the Federal Reserve Bank of New York, presented the results of his paper (with Chris Mayer and Joe Tracy), which looks at the performance of HELOCs versus closed-end seconds, as well as the performance of second liens versus other types of consumer debt (credit cards and auto loans). He also discussed the default performance of matched first and second liens, which Andy Leventis, of the Federal Housing Finance Agency, tackled in depth.
Dr. Leventis focused on the impact of piggyback and subsequent seconds on first lien performance between 1996 and 2010. His analysis also provided an empirical evaluation of the financial context in which borrowers took out second liens. Using credit bureau data, his paper provides statistics on the evolution of borrower credit outcomes before and after second lien originations.
Leonard Kiefer, of Freddie Mac, commented on all three papers and enhanced the discussion with results drawn from his research.
Sam Khater, deputy chief economist, CoreLogic
Donghoon Lee, senior economist, Federal Reserve Bank of New York
Andy Leventis, principal economist, Federal Housing Finance Agency
Leonard Kiefer, deputy chief economist, Freddie Mac