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HELOCs on the Wane?

Household debt inched up in Q4 2018 for the 18th consecutive quarter. At $13.5 billion, it was 6.9 percent higher than its previous peak in Q3 2008, according to the Federal Reserve Bank of New York (New York Fed's) latest quarterly report on household debt and credit.

Despite this rise in overall household debt, the report indicated that mortgage origination declined during the quarter to $401 billion from $445 billion in the previous quarter marking the lowest level of origination seen in nearly four years. Home equity lines of credit (HELOCs) also continued their declining trend for 2009 with a drop of $10 billion in the fourth quarter to $412 billion—the lowest level seen in 14 years.

Mortgage balances on consumer credit reports, the New York Fed revealed, remained unchanged at $9.1 billion from the previous quarter as did mortgage delinquencies with 1.1 percent of mortgage balances 90 or more days delinquent. Delinquency transition rates were mixed with around 1 percent of current balances transitioning to delinquency. The report indicated that transitions from early delinquency also remained flat as 14.8 percent of mortgages in early delinquency transitioned to 90+ days delinquent.

"The decline in credit inquiries to the lowest in the series history is quite dramatic," said Tendayi Kapfidze, Chief Economist at LendingTree. "However, it likely reflects the sharp drop off in mortgage refinance activity as mortgage rates rose and does not signal a contraction in demand for non-mortgage debt."

Giving a comparison between the debt levels seen during the last peak and the ones reported by the New York Fed for the fourth quarter of 2018, Kapfidze said that one major difference between the two time periods was the fact that real estate values and consumer bank deposits had grown more than mortgage and consumer debt in 2018. "Deposits have grown by $2.5 trillion more than consumer debt, and homeowners have nearly $10 trillion more in home equity than they did a decade ago."

Click here to read the full report from the New York Fed.

About Author: Radhika Ojha

Radhika Ojha is an independent writer and copy-editor, and a reporter for DS News. She is a graduate of the University of Pune, India, where she received her B.A. in Commerce with a concentration in Accounting and Marketing and an M.A. in Mass Communication. Upon completion of her masters degree, Ojha worked at a national English daily publication in India (The Indian Express) where she was a staff writer in the cultural and arts features section. Ojha, also worked as Principal Correspondent at HT Media Ltd and at Honeywell as an executive in corporate communications. She and her husband currently reside in Houston, Texas.
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