Don’t expect consumers to go back to using a home equity line of credit to finance their auto purchase anytime soon, with the possible exception of some high-end luxury buyers.
Before the last recession, so-called HELOCs were quite common, dealers said. When the housing bubble burst, HELOCs dropped out of sight at dealerships.
Still, interest rates are low nowadays. Consumers are building equity again. As a result, HELOCs are starting to make a bit of a comeback — just not in the auto finance space, said Cristian deRitis, a senior director at Moody’s Analytics, in a webinar on Wednesday.
He said HELOCs are still hard to get for all but the most creditworthy customers. Moody’s said 2005 was the last big year for HELOC originations for all purposes, not just for autos.
“What we can see in HELOC originations is, it is still quite tough to get a HELOC,” deRitis said. “You have to have equity.” Origination volumes are “small and quite concentrated” among customers with super-prime credit, he added, noting that HELOCs are commonly used to fund home improvements, but not for autos.
“Most of that HELOC buying is not going to finance autos,” he said. “Clearly, if your credit is impaired in any way, you’re not able to access HELOCs.”
Good riddance, says Mike Jackson, chairman and CEO of AutoNation Inc., the nation’s biggest new-car retailer. In 2012, Jackson said in a conference call that auto finance was “all the way back” from the recession — except for HELOCs. Jackson said in retrospect, the common use of HELOCs was a warning sign housing prices were overinflated.
Marc Cannon, senior vice president of corporate communications and public policy for AutoNation, told Auto Finance News on Wednesday that total debt balances for HELOCs have decreased every year since 2009. “We haven’t seen any evidence of consumers using these types of loans to finance vehicle purchases,” he said.
More details on the Auto Finance Risk & Compliance Summit, May 18-19 in San Diego, can be found at www.afrcs.com.
