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Discover Financial to roll out home equity loans later this year

By: Alex Veiga, The Associated Press

Tuesday, Mar. 12, 2013 at 7:29 PM | Comments: 0

LOS ANGELES, Calif. - Discover Financial Services says it will begin offering home equity loans beginning in the second half of this year, the latest move by the company to push further into direct banking.

Senior executives for the Riverwoods, Ill., company laid out plans for the new home loan program Tuesday at an investor briefing.

Discover plans to make fixed-rate home equity loans between $25,000 and $100,000 to homeowners, Carlos Minetti, executive vice-president of consumer banking and operations at Discover, said at the briefing.

Minetti noted that he expects the home equity loans will appeal to homeowners looking to consolidate debt. The new loan program also should complement the company's personal loans, which are capped at $25,000, he added.

The company doesn't anticipate the program will have a material impact on its net income this year or next.

Discover, best known for its namesake credit card, has been pushing further into the direct banking business, offering auto, personal and student loans.

Last June, it acquired Tree.com Inc.'s mortgage business for $45.9 million and has since funded more than $2 billion in residential mortgages.

During the run up in home prices early in the last decade, Americans tapped the growing equity in their homes to finance spending. That ended when the housing bubble burst around 2007, driving down home values and leaving millions of U.S. homeowners with little or no equity in their homes to borrow against.

But Discover sees an opportunity in home equity loans now that the U.S. housing market has begun what appears to be a sustained, if gradual, recovery.

Rising demand combined with fewer available homes has helped push home prices steadily upward since last year. They posted their biggest annual increase in six years in January.

That's helping restore equity to homeowners, which could open the door for them to borrow against that equity.

"As this trend continues, stronger demand for this product will remerge," Minetti said.

The executive noted that loss rates on new home loans have returned to pre-housing crisis levels of around 1 per cent, down from around 3 per cent to 4 per cent during the worst of the downturn.

Minetti said that Discover's customer base could provide fertile ground for home equity loans, noting that about 80 per cent of the company's customers are homeowners.

Shares of Discover ended regular trading up 29 cents at $42.13. The stock has climbed about 9 per cent this year.

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