In the recent past, homeowners looking for equity in their homes looked to a cash-out refinance, possibly influenced by the housing crash and record low interest rates. Over the previous two years, however, home equity loans (HEL) and home equity lines of credit (HELOC) originations have been on the rise, allowing homeowners reclaim equity in their homes as lenders regain confidence in the market.
In the final three quarters of 2015, 976,000 new HELOCs had combined limits of $115.8 billion, each the highest marks in respective quarters since 2008. The total quantity is up 21%, and dollar volume is up 31% over the last three quarters of 2014.
The appreciation of home prices has sharply decreased negative equity, with the Federal Reserve reporting that homeowners have regained over $6 trillion in equity since the first quarter of 2009. At last count there were:
• More than 15.6 million borrowers with loan-to-value (LTV) ratios below 50%
• 18.3 with LTVs between 50% and 75%
• A full 30 million more who own homes in the clear.
Job growth and rising consumer confidence have increased the amount of homeowners who are willing to borrow against their homes.
As of October 2015, according to CoreLogic, almost three-fourths of homeowners with a mortgage had an interest rate below 5% and the average rate on outstanding mortgages was 3.8%. Will these owners be willing to replace these low rates and refinance into higher rates to pay for major expenses including college tuition, a new car, or large medical bills, or will they tap into equity via HELs and HELOCs? Will they consider remodeling their home instead of selling and moving into a larger home?
The Remodeling Market Index (based on a quarterly survey from the National Association of Home Builders) has stayed above 50 for ten consecutive quarters, marking a lengthy duration of confidence in the market. The Census Bureau estimates $140 billion in spending on remodeling in 2015, the highest amount since 2005.
On average, HELOCs are larger than they were before the crash, $118,684 last year compared to $101,016 between 2004 and 2007. However, the utilization rate is down, 65% in 2015 versus a high of 72% in 2010.
Lenders and loan officers are using new propensity models to identify the best borrowers. Lenders are using an ‘invitation to apply’ approach as opposed to the old ‘you have been approved’ model of mass marketing. Customers with pre-checked credit who respond are entered into a propensity model to select top scoring homeowners who are also likely to take out a home equity loan in the following six months. This process saves resources by cutting some underwriting costs and leaving out unqualified and uninterested customers.
As the housing market continues to recover, the opportunity to take advantage of market trends is increasing. Acuity National Real Estate Solutions can help. We are a national title insurance company offering high-tech closing services, a 24-hour closing hotline, and an online portal where lenders can access, upload, and download files at any time. For more information visit our homepage today.