Despite build-up of home equity many households are holding back
Home equity lending will have different trajectories for HE and HELOC loans in 2019 according to a study of mortgage lenders’ data.
The Mortgage Bankers Association’s 2019 Home Equity Lending Study reveals that closed-end Home Equity (HE) loans are set for gains this year and next while open-ended HELOCs will decline this year before rising in 2020.
"Many households are not tapping the equity in their homes, despite the significant rise in home equity since the Great Recession, wage growth, and low unemployment," said Marina Walsh, MBA's Vice President of Industry Analysis. "Our study found that lenders do not anticipate a significant ramp-up in activity through 2020 because of various challenges, including other viable consumer financing alternatives, pricing pressures and competition, and rising costs. Furthermore, changing borrower sentiment and confusion over tax deductibility appear to have contributed to lackluster lending activity in recent years, as well as muted expectations going forward."
Lenders expect a decline of 3.8% in annual originations for HELOCs in 2019 with a rebound to 3.4% growth in 2020.
But for HE loans, gains are expected to both 2019 and 2020, rising 7.8% and 8.4% respectively.
The study of data from MBA members included large banks, community banks, and independent mortgage bankers, and was conducted in the spring of 2019.
Highlights include:
HELOCs
- The debt outstanding for HELOCs dropped 2 percent from beginning to end-of-year 2018, as borrower utilization rates declined.
- HELOC utilization rates (dollar volume of outstandings compared to maximum credit facility) decreased over the period 2016-2018, when examining the rates across origination vintage year cohorts for 2016, 2017 and 2018. For example, average utilization nine months after origination was 46 percent for 2016, 45 percent for 2017, and 43 percent for 2018.
- For all active accounts irrespective of origination year, the average HELOC utilization was 46 percent in 2018. The percentage of HELOC accounts with no outstanding balance as of year-end 2018 was 27 percent.
- In 2019, lenders of HELOCs expect annual originations to drop 3.8 percent, but grow 3.4 percent in 2020. HELOC debt outstanding on a year-over-year basis are expected to drop 2.9 percent this year and 2.1 percent in 2020.
HE Loans
- Home equity loan debt outstanding dropped 5 percent from the beginning to the end of 2018. As the average portfolio aged - 76 percent of accounts were over three years old in 2018 - newer, higher-balance originations were not fully replenishing payoffs and amortization.
- Nonetheless, lenders of home equity loans expect annual originations to grow by 7.8 percent in 2019 and 8.4 percent in 2020. Home equity loan debt outstanding is expected to increase 2.0 percent in 2019 and remain flat in 2020.
