![]() In this current environment, mortgage borrowers who wish to obtain cash using the equity from their appreciated properties are very likely to consider a home equity loan or line of credit rather than a cash-out refinance, especially for borrowers with rates less than three percent. According to Black Knight, approximately 80% of outstanding mortgages have a rate of 4.5% or less, as shown in Chart 1 below, using data as of January 2023: Borrowers are effectively “frozen in place” with respect to their existing mortgages. The need for home equity loans and lines today is significant. Still, the amount of lendable home equity remains very high. In the fourth quarter of 2022, the average borrower gained about $14,300 in equity year-over-year, compared with the $63,100 increase seen in the first quarter of 2022. As home price growth showed a slow, steady decline in most markets, home equity trends naturally followed suit. This trend reversed to some extent in the final months of 2022. According to Black Knight, tappable home equity has increased by $3.4 trillion over the last three years. ![]() homeowners with mortgages (roughly 63% of all properties per the Census Bureau’s 2016 American Community Survey) have seen their equity increase by a total of $1 trillion since the fourth quarter of 2021, a gain of 7.3% year-over-year. ![]() The amount of home equity available as collateral for home equity secured lending has increased at a rapid pace. In this article, we’ll explore industry perspectives on the home equity lending market and suggest possible strategies for mortgage lenders considering how to take advantage of today’s unique market situation. But the environment also provides an opportunity to revisit long-term goals. There’s no question that the most important activities for mortgage companies and banks right now are those which can enable a return to at least breakeven operations. But the unprecedented increases in rates in 2022 and into 2023, coupled with housing price increases over the last few years, has placed a focus on home equity lending - lines of credit (HELOCs) and closed-end home equity loans - as needed products in an unusual, dramatic way. This is typically done to take advantage of the normal ebbs and flows of interest rates or housing activity. Mortgage bankers are continuously focused on new products to gain a competitive edge.
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