Home Equity Lines of Credit (HELOCs) appear to be on a new upswing, according to data cited in a report on HousingWire by senior reporter Bill Conroy. Based on data released separately by the Federal Reserve Bank of New York and TransUnion, respectively, limits on HELOCs jumped by $18 billion in Q2 2022, and HELOC originations jumped 41% between Q2 2021 and 2022.
Reverse mortgages and HELOCs in some sense are seen as competitors, though unlike reverse mortgages there is no age restriction on HELOCs. However, the origination volume for HELOCs still tends to be much higher than Home Equity Conversion Mortgage (HECM) or proprietary reverse mortgage volume, though a spike in HELOCs also has the potential to illustrate a renewed interest in the tapping of home equity.
To get a better idea about whether or not there is opportunity for the reverse mortgage business related to the spike of this adjacent product, RMD solicited input from reverse mortgage professionals and analysts.
If there is an opportunity present for reverse mortgages
When asked specifically about whether or not a resurgence in HELOC volume provides potential opportunity for reverse mortgages, the potential was apparent to John Lunde, president of Reverse Market Insight (RMI).
“Absolutely, I think it speaks to consumer interest in using home equity for their cash flow across the age spectrum as it continues to be the largest source of potential funds for most households,” Lunde told RMD. “The younger borrower might be using it as a way to avoid replacing a lower rate first lien mortgage, which isn’t a motivation for reverse for older clients, but the added motivation of not repaying principal and interest or qualifying for that monthly payment is a push in favor of reverse that forward doesn’t have.”
Also seeing potential opportunity for the reverse business is Steven Sless, reverse mortgage division president at Primary Residential Mortgage, Inc. (PRMI).
“Yes, absolutely. With housing wealth representing the vast majority of the average American retiree’s net worth, many homeowners and their advisers are finding that it’s not prudent to ignore what is in most cases their largest asset,” he says. “Particularly to hedge against sequence of return and withdraw rate risk during this and future bear markets.”
HELOCs as a barometer of interest in equity lending, education
Both Lunde and Sless agree that the newfound fuel in HELOC volume could be an indicator of broader acceptance of home equity lending, which could encompass reverse mortgages particularly as people get older.
“Homeowners understanding the concept of incorporating their home equity into a comprehensive financial plan is a good thing for the reverse industry,” Sless says. “Now, it’s on us to educate them about why and how a reverse mortgage is the best route to put that equity to good use.”
For Lunde, the indications of interest in home equity could serve as a signpost for industry participants to potentially bring new partners into the fold.
“I do think we’re in a position where HELOC lending can be a good broad indicator for interest in reverse as well, and potentially lender interest in offering reverse for companies that aren’t already in the space,” he says.
When it comes to product education, a new kind of acceptance for home equity lending could indicate a need for the industry to pivot to some new priorities especially considering the sizable investments that industry companies and organizations have made in that effort, Sless says.
“While the reverse industry, by and large, has focused our efforts on educating folks on the benefits of reverse mortgages in recent years, there is far more education needed,” he says. “Particularly to those in the financial services industries and even to local bankers who are finding themselves talking to more potential reverse mortgage candidates but often do not offer reverse mortgage products.”
While the industry has some of its own secondary and capital markets concerns at the moment, the viability of the reverse product is something to be accentuated, Sless says.
“We offer a viable solution during a time of economic turmoil,” he says. “A solution that oftentimes goes overlooked because of the visceral response many folks have when they hear the term ‘reverse mortgage.’ Reverse professionals that wish to be in this space for the long haul should be using this opportunity in the marketplace to establish their presence and their brand in their local market as a reverse mortgage leader.”
What the industry should do next
In terms of where the industry would be well-suited to go next based on this spike in HELOC volume, Lunde says that taking to heart the idea that HELOC lending could serve as a broad indicator of home equity interest — including in reverse mortgages — should be kept in mind by industry professionals.
“The industry should be looking to capitalize on both fronts, continuing to get in front of the consumer and also in front of lenders that can offer reverse but aren’t currently if they’re interested in HELOCs,” he says.
Likewise, Sless says that a renewed HELOC interest could serve as a “golden opportunity” for the reverse mortgage space.
“[That’s particularly true of] the line of credit option as a viable alternative to a traditional HELOC,” he says. “We should be communicating the benefits of a reverse mortgage over more traditional methods of accessing home equity while articulating the similarities between these other options and their reverse cousins. The more we relate reverse loans which are often misunderstood to loans that the consumer better understands, the more comfortable consumers and financial professionals become with our products.”