As the pool of homeowners with available equity in their properties has expanded, so has the origination of home-secured credit lines.
There were 976,000 new home-equity lines of credit that were opened during the period from Jan. 1 through Sept. 30 of last year.
In addition to increasing by 21 percent from a year earlier, it was the most HELOCs originated for the nine-month period since 2008.
The details were discussed in Home Equity Lending Landscape from CoreLogic Inc.
More than 12.2 million HELOCs were originated between 2004 and 2007.
The combined credit limits on the 2015 activity exceeded $115.8 billion, 31 percent more than in the same period in 2014 and also the greatest amount since 2008.
The report indicated that ongoing improvement in the real estate market and the economy, as well as better loan performance, are helping to raise lenders’ comfort levels with home-equity products.
CoreLogic noted that volume still stands well below 2005 — when HELOC lines opened amounted to $364 billion, loan-to-value ratios went as high as 100 percent,
and underwriting was far less stringent.
Today’s LTV ratios average just 61 percent, CoreLogic said. The report indicated that HELOC lenders have used 80 percent as a hard LTV ratio ceiling over the past eight years.
Valuation tools utilized on today’s HELOCs include automated valuation models that provide additional information.
HELOC
FICO scores averaged 774 last year, up around 30 points from a decade ago, and debt-to-income ratios were around 35 percent.
HELOCs aren’t subject to the Qualified Mortgage/Ability-to-Repay rules.
The performance of HELOCs has improved since the early 2000’s, with 60-day delinquency at 36 months’ seasoning dropping by half to around 0.25 percent.
Warnings about potential defaults on legacy HELOCs where draw periods are ending and repayments are starting might have been overblown, with 30-day HELOC delinquency at around 2.0 percent through November of last year — the lowest in eight years. This was aided by an extension of interest-only periods by lenders as well as first-mortgage refinances that also paid of the HELOCs.
CoreLogic reported that the average HELOC line at origination increased to $118,694 last year from $108,960 in 2014 and $103,016 between 2004 and 2007.
The monthly HELOC utilization rate averaged nearly two-thirds in 2015, down from 71 percent in the years from 2008 to 2011 and from a 15-year peak of 72 percent in 2010.
Federal Reserve data cited in the report indicated that home equity has grown more than $6 trillion since the trough in the first-quarter 2009.
That means that borrowers with LTV ratios under 50 percent numbered 15.6 million as of the third-quarter 2015, while another 18.3 million had ratios between 50 percent and 75 percent.
In addition, 30 million homes were free and clear.
As the number of HELOC prospects has expanded, lenders need to find the right balance between competitive pricing and profitability.
Prospects need to have enough equity to obtain lines of at least $50,000, and they need to be likely to quickly take a draw. Some lenders are utilizing propensity models to identify these characteristics.
Lenders are also sending out “invitations to apply,” which
alerts prospective borrowers about available home-equity programs. Once a response is received, the lender pulls a credit report and determines the amount of available equity. With that data in hand, the prospects with the highest propensity for taking a draw within six months are targeted.
CoreLogic says there are currently 1.4 million borrowers who are likely to take out a home-equity loan during the next six months.
