OCC Warns About Rising HELOC Risks

A credit risk specialist at the Office of the Comptroller of the Currency is warning banks to prepare for increasing losses on their home equity lines of credit over the next four years.

“We believe delinquency rates may soon tick sharply upward as a significant number of HELOC loans reach the end of their draw period—when borrowers no longer have access to credit lines and when their monthly payments will increase because of amortization,” deputy comptroller Darrin Benhart said Wednesday.

OCC estimates that $29 billion of HELOCs will reach their end-of-draw period in 2014. That will jump to $52 billion in 2015, $62 billion in 2016 and peak at $68 billion in 2017.

“We have stressed that banks offering HELOC products should establish processes to quantify and address this risk of increasing delinquencies and losses,” Benhart said.

“Taking action now will provide greater flexibility for borrowers and will allow banks to manage this portion of their risks more effectively,” he told a Mortgage Bankers Association risk management conference in Phoenix.