Guess what’s back? Home equity lending. Smart Money is reporting that banks are making a push back into the business but are only catering to pristine type of borrowers.
Three different banks told the publication that home equity lending is up at least 20% across the board. At Associated Bank, the average home equity loan, taken once as a lump sum, is around $75,000; at Citizens, the average credit line on a HELOC, which borrowers can tap over time, is around $100,000.
That’s enough for cash-strapped homeowners to pay for renovations or home repairs – especially if they’ve decided to stay in a house they can’t, or don’t want, to sell in the current market. “We found an opportunity that we can take advantage of,” says Val Glytas, director of consumer lending at Associated Bank.
However, not all borrowers will have access to the loans. In order to qualify, borrowers need at least a 720 FICO score, a minimum of 20% equity in the home, and income verification for the last two years. WIth such strict qualification requirements, the market for the loans shrinks dramatically. What other options do they have?
If the borrower is 62 or over, the HECM Saver looks very attractive compared to a traditional HELOC. The rate is roughly the same, low upfront costs, no minimum FICO and no income needed to qualify. One requirement some borrowers not prefer is the HECM Counseling, but the new product has plenty advantages and is easier to qualify compared to a traditional home equity line of credit.
Plenty of originators have told RMD they aren’t having much luck with the Saver and one said the product lacks the “wow factor” of the Standard and they’re absolutely right. But when you compare it a home equity line of credit or HELOC, it’s a whole different situation.
Data from the 2009 American Housing Survey shows there are more than 1.5 million seniors (65+) with HELOCs and they have an average loan amount of $50,000. Odds are good that many of those same borrowers wouldn’t be able to qualify for HELOCs in today’s market, so the HECM Saver is one legitimate option. Before you go and write off the HECM Saver because it doesn’t stack up against the HECM Standard, take a good look at how it compares with HELOC products, it might surprise you.