Will rising HELOC volume boost the mortgage market?
The mortgage industry has been abuzz lately with the potential of the HELOC. With home equity rates holding strong, HELOC volume has spiked in recent months – a hopeful sign for some who think home equity withdrawals could be a boon to a market that has seen volume slump in recent months.
Certainly, HELOCs have gained traction this year despite rising interest rates. A recent report from the Federal Reserve Bank of New York noted that HELOC originations were likely climbing as limits on HELOC loans jumped by $18 billion in the second quarter this year, marking “the first substantial increase in HELOC limits since 2011.”
Even more telling is a report from TransUnion, which showed that HELOC originations in Q2 jumped 41% from the same time last year.
Opportunity for Lenders
And while other home equity products have not performed as well as the HELOC, overall home equity lending isn’t suffering too much in this high-rate environment. Bank of America recently noted a spike in all home equity originations, reporting in its second-quarter earnings report a jump from $1.7 billion to $4.6 billion in the past year.
Joe Mellman, SVP and mortgage business leader at TransUnion, told MPA Magazine that this all spells opportunity for lenders.
“Mortgage lenders are now considering adding home-equity lending to their portfolios as they look for growth in a declining refinance market and seek opportunities to cross-sell to their existing customer base by tapping into historic amounts of home equity,” Mellman said. “Consumers are increasingly interested in HELOC and home-equity loan lending — leveraging rising home values to access affordable capital.”
A Tremendous Source of Wealth
OpenClose President JP Kelly agrees, noting that borrowers are choosing to tap their home equity in order to take advantage of a tremendous source of wealth they are otherwise just sitting on.
“With a home equity loan, borrowers can gain access to a lump sum of cash up front, which can be appealing for a number of homeowners with substantial equity who want to consolidate debt or finance a large expense or renovation,” Kelly said. “And with HELOCs, what equity is accessible in a tappable line of credit to be drawn upon if and when it’s needed.”
“Equity levels are so high right now that these loans can be a great option for homeowners who want to take advantage of the wealth they’ve worked hard to build in their homes,” Kelly added. “And with interest rates relatively high, it makes sense that we’ll see more borrowers shying away from refinancing and selecting home equity products instead.”