Payment shock in HELOCs at the end of the draw period

This paper examines the impact of payment shock in home equity lines of credit at the end of their draw period, when the loans become amortizing, using a unique dataset containing recent account level data. With a sample of accounts that have either reached end-or-draw, or are approaching it, we estimate a competing hazards model of default and prepayment. We relate default and prepayment to the timing and size of payment increases. We find that the approach of end-of-draw stimulates rising prepayment which peaks immediately after end-of-draw. Default only increases after end-of-draw and is sensitive to the size of the payment increase.