Home equity lending by banks and thrifts has dropped to its lowest level in four-and-a-half years, according to the Federal Deposit Insurance Corp.Home equity lines of credit outstanding totaled $538.1 billion at FDIC- insured institutions as of Sept. 30, an increase of only $4.3 billion during the third quarter. In 2004, HELOC borrowings grew at a 41.8% annual rate. As of the third quarter of 2005, the annual growth rate had slowed to 17.0%. The slowdown is likely a reaction to rising short-term rates, including the prime rate that many banks use as an index for HELOC rates. It could also signal that the HELOC guidance issued by federal regulators in May is having an impact on lenders. However, a recent loan officer survey by the Federal Reserve Board found that very few banks changed underwriting or pricing policies in response to the guidance. "Only a few domestic banks reported having tightened their lending policies in response to concerns expressed in a supervisory letter distributed last spring," the Fed said.

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