Competitive interest rates, lower fees, and higher loan-to-value ratios have caused credit unions' home equity loan market share to nearly double since 1996. Home equity loan market share has increased from 13% to 22%, reports Credit Union Magazine's 1998 National Member Survey.

Nationally, lenders made nearly 4.1 million new home equity loans in 1997, averaging $65,000, according to the National Home Equity Mortgage Association. About 80% of these loans are also first liens. The average size of a credit union home equity loan (including second mortgages) is $20,200, according to CUNA & Affiliates' economics and statistics department.

About 14% of member households have home equity lines of credit (HELOCs), up from 11% in 1996, the National Member Survey reports. Only 7% of nonmembers have HELOCs. Home improvements continue to be members' top use for home equity loans. Only 12% of members used the loans to finance or refinance autos, down from 14% in 1996.

Banks still remain the most popular source of home equity loans, but CUNA's survey reports banks' market share has slipped seven percentage points since 1996 (from 68% to 61%), losing ground to both credit unions and mortgage companies.

About nine million households had home equity loans last year, either lines of credit or traditional second mortgages, reports the Federal Reserve Bulletin. These loans represented about $420 billion on lenders' books.

Changes, however, could be forthcoming in this booming market. Congress recently stepped up its investigations into unscrupulous and fraudulent lending practices, especially those targeting elderly citizens or lowincome consumers. During hearings in March, the Federal Trade Commission said it would focus more attention on abusive lending practices.

Credit unions' greater presence in home equity lending appears to have had a positive effect for consumers: Interest-rate margins and fees on HELOCs dropped to record lows during the past year, according to the Consumer Bankers Association's 1998 Home Equity Loan Study. The average interest rate was 1.27 percentage points more than the prime rate at year-end 1997, down from 1.41 percentage points a year earlier. And closing fees on lines averaged $216, compared with $346 a year earlier.

Credit unions can boost home equity loan portfolios by:

Making sure rates and fees are in line with what other providers charge; Letting members know you offer the product. Past CUNA surveys reveal only two-thirds of members from credit unions offering home equity loans realize their credit union offers the loans; and

Lending 100% of the value of members' homes.

Copyright Credit Union National Association, Inc. Aug 1998
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