But there's still untapped potential for lenders and borrowers
Originations of home equity lines of credit (HELOCs) surged in 2022 thanks to strong demand for home renovations and remodeling.
The Mortgage Bankers Association’s Home Equity Lending Study, released for the first time since 2020, revealed that the average HELOC commitment volume or total credit offered was $2.4 billion per repeater company in 2022, up 41% from $1.7 billion in 2020. Meanwhile, home equity loan originations skyrocketed 166% from $293 million in 2020 to $780 million per repeater company in 2022.
“Home renovations and remodeling drove demand for home equity products in 2022, with roughly two-thirds of borrowers citing it as a reason for applying for a home equity loan,” said Marina Walsh, vice president of industry analysis at MBA. “Other borrower reasons were for debt consolidation (25%) and emergency cash management or other (10%).”
Read more: Remodeling demand holds steady amid higher prices and borrowing costs
The robust demand for renovations was a result of the housing inventory shortage, combined with steady home price growth and low mortgage rates. “A HELOC, or home equity loan, is one way to finance big home projects while receiving a tax advantage through the deductibility of mortgage interest,” Walsh said.
Additionally, Walsh noted that there is untapped potential for home equity lending for lenders and borrowers. “Respondents said consumer education, technological innovation, speed to delivery, and tailored products and marketing for specific customer segments were important initiatives for lenders to realize this potential,” she said.
Other key findings in MBA’s Home Equity Lending Study:
- Weighted average HELOC loan balances on outstanding rose from $108,231 at the beginning of the year to $112,113 at year-end.
- HELOC utilization rates (dollar volume of outstanding compared to maximum credit facility) improved in 2022 when examining the rates across origination vintage-year cohorts. For example, average utilization at origination was 29% in 2020, 28% in 2021, and 30% in 2022.
- The average HELOC utilization based on dollar volume was 34% in 2022, down from 40% in 2020. The share of HELOC accounts with no outstanding balance as of year-end 2022 was 31%. The percentage of HELOC accounts funded to the contractual limit was 3%.
- The average FICO score fell to 769 in 2022 from 780 in 2020. The average combined loan-to-value (CLTV) for funded HELOCs at closing dropped to 51% in 2022 from 54% in 2020, partly due to strong home-price appreciation nationwide.
- On an annual basis, lenders expect HELOC debt outstanding to increase 8.2% this year and 9.9% in 2024.
- Weighted average home equity loan balances on outstanding loans increased from $52,653 at the beginning of the year to $61,114 at year-end.
- The credit profile of the average home equity loan borrower changed in 2022. The average FICO score fell to 752 in 2022 from 768 in 2020. The average CLTV at closing decreased to 58% in 2022 from 65% in 2020.
- Lenders expect home equity loan debt outstanding to increase by 11.4% in 2023 but decrease by 5.6% in 2024.
Want to keep up with the latest mortgage news? Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
