Home Equity Originations Continue to Resurge as Interest Rates Climb
By Gary Kasper, President at New Vista Solutions
A strong economy and the looming threat of inflation are pointing to the inevitable — more interest rate hikes from the Fed in 2018. Homeowners have enjoyed record low mortgage interest rates for several years now, and most have locked in on a 30-year fixed rate that they don’t plan to touch.
With cash-out refinancing off the table, homeowners who need cash for home improvement projects and college tuition are looking at home equity loans and lines of credit as their best option.
TransUnion (NYSE:TRU) conducted a study of the HELOC industry in Q4, 2017. The study found that over two-thirds of homeowners meet the criteria necessary for a home equity loan, and their credit scores are strong. Joe Mellman, senior vice president at TransUnion said, “This amounts to approximately 65 million potential borrowers who meet current eligibility requirements, such as having under 80% loan-to-value in their homes — an extremely large market for lenders to consider.”
Mellman also said, “While long-term projections such as this are difficult, broadly we expect there will be approximately 10 million HELOCs originated between 2018 and 2022, driven primarily by continued home equity growth and a relatively robust economy.”
Will recent changes in federal tax laws have an adverse effect on home equity loan originations? Let’s take a look at the new rules regarding mortgage interest deductions.
First of all, the interest deduction on home equity loans didn’t disappear completely. As long as the loan proceeds are used to make “substantial improvements” to their home, and the combined loan balance doesn’t exceed the new $750,000 limit, a consumer can claim the interest paid on a home equity loan as a tax deduction on their federal tax return.
According to a Washington Post article (January 17, 2018), tax experts agree that proceeds from a home equity loan can be used to buy, improve, or construct a home, and still be eligible for the mortgage interest deduction.
In that same article, Bob Davis, executive vice president of the American Bankers Association was quoted as saying, “HELOCs will still be in the mix”, despite rumors that home equity originations might decline due to the new tax law regarding mortgage interest deductions.
The article also noted that the increased standard deduction in the new tax code will likely reduce the number of tax payers who itemize deductions in general, so mortgage interest deductions won’t be a concern for many.
So, it looks like home equity loans are the low hanging fruit for mortgage lenders. And with so many qualified borrowers, the competition will no doubt be fierce.
Home equity lenders will be looking for cost-effective fulfillment services that offer accurate data with a quick turn-around — and they don’t want to worry about compliance issues. New Vista Solutions is committed to providing the lending community with compliant, high-quality settlement products that exceed expectations in every transaction.
To learn more, visit our website at NewVistaSolutions.com.