Mortgage Business Expanding as HELOC Volume Nets 5-Year High

Lenders have increased their origination of home equity lines of credit (HELOCs) by 21%, surging to a five-year high in loan volume, Bloomberg reports in a recent article

In the 12 months ending in June, the total number of HELOCs given in the period amounted to 797,865, the highest level since 2009.

Bank of America Corp. — the largest HELOC provider — and other lenders are offering more Helocs, often to their existing customers at reduced rates, as rising prices gives them more equity in their homes. However, banks have also been cutting lending for home purchases after imposing stiff requirements on borrowers, resulting in many younger Americans being shut out of the market. 

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Other reports indicate that younger Americans are experiencing a shift in their debt composition, moving away from mortgage debt toward student loan debt.

But for lenders, the opportunity lies in their existing customers. 

“This is an opportunity for the banks to offer an additional product to those homeowners they see as already well-qualified and have that equity,” said Daren Blomquist, vice president of Irvine, California-based RealtyTrac, which compiled the data cited in Bloomberg’s report. “HELOCs are a way for them to actually expand their mortgage businesses rather than have to cut back.”

About 85% of Bank of America’s home equity customers are existing clients, who may be eligible to receive discounts when taking out a HELOC.

In June, the bank began offering interest rate discounts on HELOCs to customers if they have at least $20,000 in deposit or investment accounts, according to Matt Potere, a home equity product executive at the Charlotte, North Carolina-based lender. They get 0.13 percentage point off their rate, while those with $50,000 in accounts get a 0.25 percentage point discount.

Existing customers also don’t have to pay origination and annual fees and closing costs for a HELOC.

And these existing customers are proving to be big business for Bank of America, which increased volume of the loans by 75% to $4.6 billion in the first six months of this year compared to a year earlier.

“As the housing market continues to recover, customers have more equity, and as consumer confidence in general improves, you see increased demand for home equity products,” Potere said.

Still, HELOC volume is 76% below its 2006 peak when there were 3.3 million lines of credit extended. 

During the 2000 to mid-2006 real estate boom, Americans used their home equity to “like credit cards to go on spending sprees,” but now lenders face a wave of possible defaults, Bloomberg writes.

In August, TransUnion Corp. released a report saying as much as 20% of HELOCs worth $79 billion are at increased risk of default as their payments jump a decade after the loans were made.

“We’re arguably still in the early stages of an up cycle for home equity borrowing,” said Keith Gumbinger, vice president of HSH.com, a mortgage data firm in Riverdale, N.J.

To read the full Bloomberg report, click here

Written by Emily Study

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  • In that 12 month period, there were more HELOCs originated than there are HECMs currently in the active status.

    One thing our little segment has over the forward mortgage industry is that our HECMs for Purchase have not gone down: oops, I meant to say that they have not gone down any quicker than the rest of the reverse mortgage market has. Of course, how would one really notice since HECMs for Purchase are such a small percentage of our monthly national endorsement production.

    What is most interesting is that we have divisions at lenders dedicated to this rather insignificant product. It seems that HECMs for Purchase serve as a better marketing tool to meet with Realtors than substantial stand alone product.

    Despite those who cried out it was unfair to look at HECMs for Purchase in light of their historical performance, it remains the only way to realistically evaluate them and their actual market acceptance. Yes, industry optimists have been saying that HECMs for Purchase would lead us out of our current down trend, but the fact is, it is performing just as poorly as it has in the past on a proportionate basis; however, the endorsement numbers for last fiscal year were worse than they were for fiscal year 2013.

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