Even with home price growth softening over the past few months, high property values have helped mortgage holders’ equity levels reach new peaks, according to the latest Mortgage Monitor report from Intercontinental Exchange (ICE). With rates looking set to fall during the back half of the year, mortgage professionals may be shrewd to prepare for equity originations.

Both total equity (at $13.8 trillion) and tappable equity ($11.5 trillion) grew to all-time highs in June, holding back overall market leverage even with outstanding mortgage debt reaching its own zenith.

“Outstanding mortgage debt, including both first and second liens, hit an all-time high in June, but growth in home prices has outpaced that gradual rise in debt,” said Walden. “Total cumulative debt leverage — essentially a loan-to-value ratio for the entire mortgage market – is equivalent to 44.1% of underlying home values, the third lowest leverage ratio we’ve seen in the past 20-plus years. Rising home prices have also continued to build the fortunes of existing homeowners, pushing tappable equity — the amount a mortgage holder can leverage while retaining a healthy 20% equity cushion — to its highest level ever.”

Tappable equity is up 4% quarter over quarter and 9.2% year over year. Nine of 10 homeowners with mortgages nationwide (roughly 48.5 million people) have some degree of tappable equity, per ICE’s numbers.

Three out of five mortgage holders have at least $100,000 in tappable equity, a share that equates to some 32 million borrowers. Close to five million have at least $500,000 in tappable equity; more than one million have at least $1 million or more.

Moreover, two-thirds of that tappable equity is held by borrowers with credit scores of at least 760, with a comparable share held by borrowers with first lien interest rates below 4%. That’s two cohorts (with some considerable overlap, of course) incentivized to use second lien debt to tap equity if the need arises and rates, as expected, continue to dwindle.

“Home equity lending has been sluggish since interest rates began their climb higher early in 2022,” Walden said. “As the Fed raised short-term lending rates, accessing equity became more expensive for homeowners, evidenced by the anemic growth in such lending despite record levels of available, tappable equity.

“Industry expectations that the Fed will soon begin easing short-term rates could gradually change that dynamic, given the more direct impact short term rates have on home equity rate offerings, and lenders would do well to prepare. The ability to originate and service home equity loans alongside first lien mortgages will be key — to say nothing of using data-driven portfolio analysis to identify potential second lien customers.”