JANUARY 2005

MBNA to Expand Its Home Equity Loan Business

MBNA has signaled analysts that it will ramp up its home equity business, either by originating more home equity loans or by acquiring a home equity loan portfolio. MBNA spokesman James Donahue told the American Banker that the company originates about $1 billion of home equity loans or lines of credit each year through its telephone interactions with customers. The company indicated it could originate $1.5-2 billion of such loans annually and will likely retain more of these loans in its own portfolio in the future. However, Chris Brendler, an analyst at Legg Mason Wood Walker, Inc. believes that MBNA will be no more than a niche player in the home equity market if it tries to build a portfolio through originations. Consequently, he expects MBNA to be hunting for an acquisition.

MBNA efforts to diversify through home equity lending appear to be a response to the growing challenge that the home equity product poses for card issuers. Consumers have increasingly demonstrated an affinity for the home equity line of credit, given its low cost and tax advantages. Credit card receivables growth has been dampened in recent years by mortgage refinancings. Banks are increasingly offering home equity lines as companion products to new mortgages. Morgan Stanley analyst, Kenneth Posner, has raised his forecast for home equity lending growth to 20% a year through 2010 and reduced his five-year forecast for credit card receivables growth to 2% from 5%. Posner told the American Banker "I think the monoline card companies risk facing a shrinking market if they don't find a way to get into this business. I think their actions suggest they see the writing on the wall."