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Mortgage

TransUnion: Home equity lending is going to soar

Says market dynamics will propel more homeowners to tap equity

Home equity levels continue to rise, and all signs point to a market ripe for home equity lending, according to a recent report from consumer credit reporting agency TransUnion.

Home equity levels have risen every year and are now nearing $15 trillion, surpassing its 2006 peak by more than $1 trillion. TransUnion said this fact and several other dynamics will converge to create significant growth in home equity origination.

“There are ample signs that the home equity lending market is poised for growth. Home prices have surpassed 2005 boom levels and household home equity has grown even faster,” said Joe Mellman, TransUnion’s senior vice president and mortgage business leader. “Increasing consumer debt makes debt consolidation an appealing option and home equity can be the most economically attractive path to do just that.”

Interest rates also play a role, according to Mellman.

“With rising interest rates and increases in home prices outpacing wage growth, homeowners are more likely to stay in their current homes, rather than ‘move up,’” Mellman continued. “This leads to a higher likelihood of improving their existing home and home equity can be great tool for that.”

TransUnion said its study revealed that last year, HELOCs comprised the greatest number of home equity originations with 1.2 million loans closed, a 2.3% increase from the previous year.

The company said HELOCs present a great opportunity for lenders, because an estimated 70 million homeowners may qualify and these loans have extremely low vintage default rates.

“The recession caused a home equity lending pull-back, which all but eliminated consumer marketing and education,” Mellman said. “We think there’s an opportunity to re-introduce that education to consumers and help them evaluate how and when tapping home equity could make sense.”

Using data from 2.4 million home equity loans originated from 2016-2017, TransUnion broke down the use of home equity loans into five categories to help lenders better understand how they can appeal to borrowers.

Here’s how homeowners use the funds from their home equity loans:

Major Expenses, like home renovations: 91%
Debt consolidation: 41%
Refinances: 23%
Piggyback, in conjunction with a mortgage loan, often for a down payment: 4%
Undrawn, not used immediately: 2%

Mellman said knowing how consumers might use their home equity can help lenders craft better marketing strategies.

“In today’s consumer-centric marketplace, consumers expect personalized offers addressing their specific needs. Studies show consumers are much less likely to find value in generic messaging and education,” he said. “Utilizing a personalized marketing approach addressing specific usages consumers have in mind can help ensure a strong relationship between consumer and lender.”

 

 

 

 

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