New York -- Delinquency rates on home equity loans at major U.S. banks might double in 2008, The Wall Street Journal reported on Wednesday.
The losses aren't expected to reach the $150 billion in subprime mortgage delinquencies banks have suffered since August 2007. But, equity loan delinquencies accounted for 12.5 percent of all delinquent loans at Bank of America Corp. in the fourth quarter of 2007, up from 9.4 percent in the first quarter.
Charles Scharf, head of J.P. Morgan's retail business said the equity loan losses may double in 2008.
Major lenders, such as Washington Mutual and National City Corp. have 12 percent to 19 percent of their total assets in home equity loans, the paper said. Currently, 4.65 percent of those loans are delinquent, up from 3.11 percent a year ago.
Banks have less to fall back on when an equity loan defaults. Once a staple of home-improvement projects, home equity loans are now used for vacations and tuition bills.
If an equity loan defaults, a bank has little collateral to seize. It can seize the house only after the mortgage is paid. If the mortgage is current, there is little banks can do to recover an equity loan loss.
Copyright 2008 by United Press International.
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