As typical mortgage originations falter and fade to black and refinances continue to go untapped, lenders are gearing up for the next big thing among mortgage loans: home equity lines of credit (HELOCs).
Banks across the U.S. are making a valiant marketing effort to encourage homeowners to take cash out on their homes, an unusual move not seen since the housing bust, according to a report from the Wall Street Journal by Annamaria Andriotis.
"As the broader mortgage market remains in the doldrums, banks are again touting home-equity lines of credit, which allow homeowners to draw down the equity in their home as they need the cash, as well as cash-out refinances, which involve taking cash out of a home while refinancing and ending up with a larger mortgage balance," the report stated.
A few lenders that the Wall Street Journal mentioned are now making a push toward more HELOC lending are: J.P. Morgan Chase & Co., PNC Financial Services Group Inc., and TD Bank. The three largest HELOC lenders include Bank of America Corp., Wells Fargo & Co., and J.P. Morgan.
Home equity loan balances have cooled off thanks to borrowers paying off debts, according to Equifax's National Consumer Credit Trends Report for February 2016.
The report showed that HELOC debts decreased 3.7 percent from $514.2 billion to $495 billion from January 2015 to January 2016. In addition, home equity installments loan balances fell 5.1 percent from $138.5 billion to $131.4 billion over the same time period.
"With many HELOCs hitting their recast into amortization we are seeing increased payoffs, reducing the debt and numbers of HELOCs outstanding," the report stated. "About 20 to 25 percent of HELOCs active a year prior to their recast anniversary will payoff and close within the year after date. Originations of new loans are not keeping pace with the payoffs."
Many in the mortgage industry predicted the uptick in home equity lending prior to the start of the new year in interviews with MReport.
Joey McDuffee, Head of Sales and Marketing at Wipro Gallagher Solutions said, "In terms of originations, we are seeing a lot of activity in the home equity (HELOC) market again. If this uptick continues, more lenders will need to quickly adapt their processes and technology to support these and other non-agency loan types."
Matt Martin, CEO of Dallas-based Chronos Solutions, stated, "Once the initial gloom and doom response to the interest rate increase dissipates, we will realize that it remains historically low. It’s even quite possible we’ll see some increased HELOC activity later this year.”
Ben Graboske, Black Knight Data & Analytics SVP, noted that borrowers are tapping into available equity, but higher interest rates could change things a bit.
“Even so, it’s clear that borrowers have been capitalizing on the increased equity available to them," Graboske said. "However, as interest rates rise, we could see an increase in HELOC lending and corresponding slowing in first lien cash-out refis, as borrowers will likely want to hang on to lower rates for their first mortgage while still being able to tap available equity.”