Although Texas legislators recently changed their laws allowing mortgage originators to extend home equity lines of credit (HELOC), market players do not expect Texas-originated HELOCs in many new issues going forward. Driving this sentiment is the still restrictive policies governing HELOC originations and the high-quality borrower that typically opens a HELOC.
The rules governing the newly allowed mortgage product are seen keeping HELOC originations in check, according to insiders. "The laws governing HELOCs are still restrictive," noted GMAC-RFC managing director Diane Wold. "The new law only allows for an 80% maximum LTV. The purchase market for HELOC product is driven by LTV and mortgage insurance concerns."
Others see the high-quality borrowers that make up HELOC pools as benefiting banks' balance sheets rather than HELOC ABS collateral pools.
"I think that banks will be the biggest beneficiaries of the new legislation," said Banc One Capital Markets Mortgage ABS researcher Glenn Schultz. "Prime HELOCs are a great balance sheet item, with stable pay and draw rates as well as low defaults."