Determinants of the Demand for Home Equity Credit Lines

Abstract

From the Survey of Consumer Finances conducted in 1989 and 1992 a logit model was tested for demographic and financial influences on household decisions to utilize home equity line credit. Results indicate that among households with credit lines other than credit card lines or business lines, the choice of a home equity credit line in lieu of another type of check credit line is influenced principally by percentage of equity in the home, income, net worth, age of the borrower, and credit price. Several implications may be derived from this study. As the markets reflect more complete information about the low‐risk attributes of this credit, the convenience as a payment mechanism, and the tax subsidy to homeowners, it is expected that home equity credit lines users will be distributed more evenly across income and wealth categories.

Equity Dilution: An Alternative Perspective on Mortgage Default

“…and Canner, Durkin and Luckett (1998) update those findings, including SCF data showing that home equity balances outstanding reached $110 billion by 1994. The most directly relevant research to the questions addressed here isSalandro and Harrison (1997), who addressed the determinants of home equity credit line usage using 1989 and 1992 SCF data. They report a strong positive relationship between home equity borrowing and available housing equity and a negative relationship to borrower age, income and net worth.8 In important new work in progress,…”

What role did piggyback lending play in the housing bubble and mortgage collapse?

“…Weicher (1997) reviews the growth of the home equity lending industry during the 1990s, describing it as business based on recapitalizing borrowers with substantial housing equity, but impaired credit. The only paper that we have been able to identify that directly addresses the determinants of home equity borrowing is Salandro and Harrison (1997), who used 1989 and 1992 SCF data, well before the dramatic increase in home equity lending occurred.…”

Home Equity, Fungibility, and Consumption: The Increasing Rationalization of Society

“…Debt consolidation and purchase of vehicles dominate non-home expenditures (U.S. Census Bureau 1998). Studies of home equity borrowers indicate that the factors which influence home equity borrowing are quite similar to the factors which influence the accumulation of credit card debt (Salandro and Harrison 1997).…”