With home equity continuing to increase and a need for more debt consolidation tools, home equity lending is poised for strong growth in the coming years, a new TransUnion study revealed today.
To make the most of this growth lenders must understand specific consumers’ needs to tailor their messages, the study “Emerging Opportunities in Home Equity Lending” emphasized.
The study offered detail on the rising home equity numbers, pointing out that levels are approaching $15 trillion after hovering around $6 trillion between 2009 and 2011. Combined with a need for new ways to consolidate the also rapidly rising consumer debt, these factors make home equity a promising solution, Joe Mellman, senior vice president and mortgage business leader at TransUnion, told RMD.
“Historically, it’s somewhat been out of the consumers minds for the last generation,” he said. “Now that home equity is poised for a comeback, it’s important to know each consumer specifically and say how it can help them.”
To help lenders identify the different needs of borrowers, the study identified the five most common uses for a home equity loan: major expense, debt consolidation, refinance, piggyback (concurrent with a mortgage origination), and undrawn “rainy day” funds — and many borrowers used the loans for multiple purposes. More than 91% of home equity products were used for major expenses.
“The typical use is for some kind of home improvement,” Mellman said. “Consumers are more commonly staying in their own home and more likely to stay in that home if they make improvements.”
The study states the greatest number of home equity originations was through HELOCs, which grew 2.3% from 2016 to 2017. Other originations measured were for HELoans and cash-out refinances. But Mellman said reverse mortgages could also be another promising home equity tool for consumers, especially for debt consolidation.
“If they are carrying debt, it seems like a reverse mortgage might be a pass forward in trying to tackle all of that high interest rate debt and give the consumer a chance to get a hold of their finances,” Mellman said.
For borrowers with a major expense, Mellman sees another use for reverse mortgages.
“If someone wants to expand or improve their home, reverse mortgages seems like a potentially big use,” he said.
Written by Maggie Callahan