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Why Lenders Love Home Sweet Home Equity


Economic Trends

WHY LENDERS LOVE HOME SWEET HOME EQUITY

While banks are clamping down on most lending, home-equity loans are still on a relative roll. Economist Gary Schlossberg of Wells Fargo Bank points out that home-equity lending is actually running more than 18% over its year-earlier level.

Banks like the home-equity action, Schlossberg explains, because it represents secured loans with a relatively low delinquency rate--0.85% late last year, compared with 2.94% for bank credit cards. And consumers like such loans because interest rates typically run only 1 1/2% to 2% over prime, interest payments are tax-deductible, and repayment periods can last 7 to 15 years.

Schlossberg notes that home-equity loan growth has been slowing somewhat in recent years and will "undoubtedly slow further before the economy bottoms out." But he expects it to come back even stronger in the years ahead, sparked by borrowing for such needs as home improvements and college tuition for the offspring of baby boomers.With only 20% or so of all homeowners currently sporting home-equity credit lines, and the value of untapped home equity running about $2.1 trillion last year, the potential size of the market, Schlossberg says, "remains huge."GENE KORETZ


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