Tappable Home Equity Reaches All Time High — A New Study Predicts a Surge in HELOCS
By Gary Kasper, President at New Vista Solutions
Home equity continues to climb and the tappable portion (available to lend) has reached its highest number on record, surpassing the 2005 peak according to mortgage data firm Black Knight.
Tappable equity is the maximum amount of equity that homeowners can borrow before exceeding the 80% combined loan-to-value limit set by most equity lenders. That number recently hit $5.8 trillion.
Black Knight Executive Vice President, Ben Graboske, stated, “As home prices continued their upward trajectory at the national level, the amount of tappable equity available to homeowners with mortgages continued to rise as well. Tappable equity rose by $735 billion over the course of 2017, the largest calendar year increase by dollar value on record.”
American consumers withdrew $262 billion from their home equity in 2017, but there was evidence of a more reserved approach in the fourth quarter with only 1.25% of available equity being withdrawn.
According to a new study by J.D. Power, lenders need to prepare for an upsurge in HELOC applications over the next five years. Current applications are predicted to double during that time — to 10 million. The study also stressed the importance placed on the digital experience by today’s consumer.
The new J.D. Power 2018 U.S. Home Equity Line of Credit Satisfaction Study looks at customer experiences surrounding the HELOC application and approval process. The results indicate a strong preference toward digital processing rather than the traditional flow of paperwork.
“Lenders need to recognize that the HELOC customer experience is a journey that begins with initial consideration and evaluation and extends through to usage, with each part of the journey affecting overall perceptions,” said Craig Martin, J.D. Power senior director of financial services.
“Increasingly, many steps in that process are occurring in digital and mobile channels, which are areas that the industry has been slow to leverage and refine,” Martin said. “As Millennial homeownership rates increase and home values continue to rise, lenders need to be able to meet these customers where they want to be, not try to force them into the lender’s entrenched methods.”
The study reported that 59% of Millennials (now 22-37 years of age) did their research and information gathering on a desktop computer, and 50% used their mobile devices. It’s clear that lenders will need to put their best digital foot forward to compete for this tech savvy customer’s business.
Another interesting statistic shared by Graboske — over half of the current tappable equity is held by borrowers with credit scores of 760 or higher, and they have first lien mortgages with interest rates below today’s rates, which makes home equity loans more appealing than cash-out refinances.
So, it appears home equity lenders can look forward to a robust (and competitive) business climate in coming years. Those with strong technology platforms and quick turn times will most likely win the lion’s share.
New Vista Solutions is a leading provider of mortgage settlement services to the mortgage lending community — specializing in home equity products and services. For more information, visit NewVistaSolutions.com.