Billions of dollars worth of HELOCs originated before the financial crisis come to their end-of-draw periods over the next few years, but Massachusetts lenders don’t seem to be too worried about mass defaults.

Citing its own research, Experian said recently that $265 billion in home equity lines of credit originated between 2005 and 2008 will come due over the next few years, posing potential problems for both borrowers and lenders.

A good deal can happen in 10 years, and a customer who was a perfectly worthy borrower in 2005 might no longer have that sterling credit or equity in their home that he or she had prior to the financial crisis, and those are the borrowers that have lenders worried.

“The really hard part is, unlike a commercial loan where you’re probably getting financials on a regular basis, because these are home equities and they’re mostly second liens on the real estate, the banks aren’t getting updated personal financial statements from borrowers. It would be too cumbersome,” said Dan Morrill, a principal at the Boston-based accounting firm Wolf & Co. “So it’s difficult to understand what the impact might be.”

While home values in the Greater Boston area have recovered from the recession – and, in some cases, bounced back to their pre-crisis highs and then some – median home prices elsewhere in the Bay State have not quite returned to 2005 levels, according to data from The Warren Group, publisher of Banker & Tradesman.

But that doesn’t seem to have too many Massachusetts lenders worried about the matter. For the most part, they say they’ve got it under control.

Last year, Clinton Savings Bank had a number of HELOCs originated in 2004 enter their end-of-draw period, said Ed Powers, senior vice president and chief lending officer. In some cases, the loan went into full repayment without issue; in other cases the customer applied to re-extend the interest-only period, and still other customers wound up refinancing.

“But we really haven’t had any problems or delinquency issues thus far,” Powers said.

John O’Brien, president and CEO of Leominster Credit Union, expressed a similar sentiment. Of the $50 million or so outstanding HELOC balances in the credit union’s portfolio, only about half of the borrowers have even utilized those credit lines, and the delinquency rate for that portfolio is just about half a percent, he said.

He credits that partly to careful underwriting policies and partly to the six months of notice the credit union gives to borrowers about to enter their end-of-draw period. And while home prices in his market area haven’t quite bounced back to 2005 levels yet, he said he’s still seen enough appreciation in home values in recent years to feel confident about that product.

In fact, a number of bankers interviewed for this story said they would be increasing the amount of notice they give to those borrowers, often from 60 days to six months.

“It’s all how you deal with your consumer. If you deal with them in good faith and realize that we’re on the hook one way or another for this money. … There’s certainly a better chance of us getting a repayment than if we were to take a hard line,” said Thomas Dufault, vice president of mortgage and consumer lending at North Middlesex Savings Bank.

Regulatory, Accounting Headaches 

Still, the coming mass HELOC drawdown will pose a number of challenges for community banks and credit unions.

The first step any bank or credit union needs to take is identifying those borrowers nearing the end-of-draw period who could be high risk, Morrill said. That might mean sending out letters to those borrowers, or it could be more in depth than that – for instance, cross-referencing delinquency reports for other types of accounts to look for clues that a borrower has previously had difficulty paying their other obligations.

Regulators also want to see bankers taking a proactive approach, he said.

Once you’ve identified those potentially troubled loans, you’ll have to factor that into your allowance for loan losses, too, said Hayes Murray, an audit manager at Wolf & Co.

The prolonged low-interest rate environment could actually be a saving grace for those borrowers who might struggle with higher payments they forgot about, he said.

But even assuming the worst-case scenario, in which every borrower with a home equity line of credit decided to default on their obligations, Christine Pratt, a senior analyst at Aite Group, reminds us that home equity lines of credit, altogether totaling just under $500 billion, are a drop in the bucket compared with the $15.8 trillion in assets that FDIC-insured banks posted in the first quarter

“There are a lot of consumers who didn’t overextend themselves and worried about it and they’ve been paying them along right away. They’ll reset them and rewrite them or just continue paying on them,” she said. “Even if the most awful thing happened … that’s still not a lot of money.”

Email: lalix@thewarrengroup.com