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Lending

2.5 million borrowers face imminent payment shock

Resets to happen over next few years

time is money

At least 2.5 million borrowers will face an average increase of $250 per month on their monthly mortgage payment due to the imminent reset in home equity lines of credit over the next three years, according to Black Knight Financial Services’ Mortgage Monitor Report.

However, depending upon borrower behavior between now and the time of the reset, payment increases could change, Kostya Gradushy, Black Knight’s manager of research and analytics, said.

Borrowers whose home equity line of credit will reset over the next three years are utilizing just under 60% of their available credit. If these borrowers utilize more of their credit, they could face even more payment shock as the monthly increase would rise above the $250.

And the news is not much better for the borrowers whose payments are not likely to reset until 2019. These borrowers are exhibiting even lower utilization ratios — about 40% of their available credit. Once reset, they will likely face an average monthly increase of $200.

"Should their drawing pattern match that of older vintages, we could be looking at a significantly higher risk of ‘payment shock’ for this segment,” Gradushy said.  

HELOC resets are long considered a "silent" hazard to the first lien mortgage. In the run up to the housing bust, less and less money was being put down on homes, though the rate of HELOC origination did not necessarily slow.There were even concerns developing for investors in residential mortgage-backed securities.

So far, however, it's the big bang that never happened.

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