Scotsman Guide > News > May 2018 > News Story

 Enter your e-mail address and password below.

  •  
  •  

Forgot your password? New User? Register Now.

News Archives

 
Subscribe icon Subscribe to our weekly e-newsletter, Top News.

Home equity lines taper off in Q1


With record levels of tappable equity locked up in homes, analysts anticipate a surge in originations of new home equity lines of credit (HELOCs).

The recent numbers, however, suggest that HELOCs have been losing favor with consumers.

homeequityline(1)HELOC counts totaled 310,999 newly opened lines in the first quarter of 2018, down for the third consecutive quarter, Equifax reported. Newly originated lines declined by nearly 12 percent from the fourth quarter of last year and were down by 3.6 percent from first-quarter 2017, Equifax reported. The available balance on new accounts totaled $36.7 billion, down nearly 7 percent from the final quarter of last year, and slightly lower than last year’s first-quarter figures, Equifax said.

Home equity installment loans also have posted declining numbers over the past three quarters, Equifax data indicates. Equifax reported 168,708 home equity loans originated in the first quarter of 2018, with a total balance of $6.9 billion. Notably, the number of home equity installment loans rose by 11 percent year over year, but the overall balance was down 2.6 percent, according to Equifax. These figures could be revised as more data from financial institutions is reported to Equifax, a spokesman said.    

Originators told Scotsman Guide News last week that HELOC numbers have dipped slightly as interest rates have risen. Borrowers, they say, generally know that mortgage rates are moving up. The Federal Reserve also is expected to raise short-term rates at least two more times this year. The Fed’s moves have a more direct impact on shorter-term variable rates. Borrowers have been more inclined lately to tap their equity with a longer-term, fixed-rate loan.

“If anything, I have seen a decrease in the amount of demand for home equity lines,” said Jill Lyons, a senior loan officer at CMG Financial based in San Ramon, California. Lyons said that fixed-rate second loans of late have had the upper hand. 

“It is only just recently,” Lyons said. “For somebody who is just coming and saying, ‘Hey, I am looking to get a home equity line of credit,’ there is a small decrease in that,” she said. “There are a couple of reasons why. Home equity lines of credit are really now more expensive than they were before. They are tied to prime, prime plus something.”

The longer-term prospects for growth in HELOC originations look good, however. The tappable equity locked in homes at the end of 2017 totaled $5.4 trillion, the most on record, according to Black Knight. More than half of that equity was also held by people with excellent credit, a FICO score above 760, creating a large pool of potential low-risk HELOC borrowers, Black Knight said. The company said that borrowers, though, have been “more reserved in tapping their equity than in years past.” 

“A lot of borrowers maybe saw a lot of people that got hurt by HELOCs, or maybe got hurt themselves by HELOCs before,” said Tom Barkley, vice president with Minnesota-based TruStone Financial. “They are kind of a little bit hesitant.”

Another factor holding down the numbers is that home equity lines tend to be only available to people with the best credit. At a minimum, a borrower typically needs a credit score of at least 680 to be considered. In this past first quarter, the median VantageScore 3.0 credit score was a pristine 770, Equifax reported. 

“Usually it does tend to be a higher tier," Barkley said. "We like to see people who have a little bit less revolving debt, show the ability that they can control their revolving debt, have disposable income." 

HELOCs also are still competing as a product against cash-out refinances. Although mortgage rates have risen, rates are still below 5 percent. This is low by historic standards and has kept cash-out refinancing in play as an option for borrowers. 

A coming surge? 

Originators expect HELOC activity to pick up this year, however. As rates move up, analysts say it will make less sense for borrowers to refinance their low-rate first mortgages to draw out equity. Equity lines are also a more flexible product than second loans, which tend to be more suitable for one-time large purchases. HELOCs are often used to consolidate debt and do home improvements, but they can be drawn upon much like a credit card for various purposes. A HELOC, unlike a loan, can be paid off and drawn upon over several years.

“The equity is there and it is tempting, so people are using it,” said Justin Brown, branch manager with Cross Country Financial in the greater Los Angeles area. He said fewer people are willing to refinance their first mortgage to pull out equity, leaving a choice between a fixed second loan or a HELOC. He said that Southern California residents have been using HELOCs to piggyback on their first mortgage to complete home sales.

“Prices in San Bernardino and Riverside County are pretty high above the loan limits, so HELOCs have been a good way to bridge the gap: a conventional first and a home equity second,” Brown said

To end the year, HELOC activity was rising in some unexpected places, said Daren Blomquist, senior vice president at Attom Data Solutions. He said origination counts were up significantly in Nashville and Las Vegas in the fourth quarter of 2017. In California, origination counts rose the fastest in inland cities, and surprisingly not on the coast, where home prices have been exploding. 

Nationwide, HELOC originations topped out last year at around 1.3 million new lines, roughly the same as in 2016, Blomquist said. That number has come up from a low point of around 750,000 in 2012. Today’s HELOC counts are at less than half the level originated at the peak of the last market boom in 2006, when 3.5 million HELOCs were originated, Blomquist said.

“With a HELOC, it is more of a rainy day fund to leverage that equity,” Blomquist said. “Unless you actually use it, the interest rates are not necessarily kicking in. That may be more of an appealing option for folks than cash-out refinancing. So yeah, I would expect to see a rise in those, given that combination of rising interest rates, but also a continuing rise in home prices that we are seeing.”   


 

Questions? Contact at (425) 984-6017 or victorw@scotsmanguide.com.

Get the latest news and articles from Scotsman Guide straight to your inbox.


Send me the following e-mails:





Learn more about Scotsman Guide e-mails

Thank you for signing up to receive e-mails from Scotsman Guide.

A confirmation e-mail has been sent to the address you provided.

For questions regarding your e-mail subscriptions please contact Circulation@ScotsmanGuide.com or call (800) 297-6061.


Fins A Lender Post a Loan
Residential Find a Lender Commercial Find a Lender
Follow Us:Visit Scotsman Guide Facebook pageVisit Scotsman Guide LinkedIn pageVisit Scotsman Guide Twitter page
 
 
 
 

 
 

© 2019 Scotsman Guide Media. All Rights Reserved.  Terms of Use  |  Privacy Policy