Home equity lending returned in some unlikely places over the past year, according to Moody's Analytics and Equifax.
A joint report from the two firms showed HELOC increases in Florida, Nevada and Michigan. These states lead the country in negative equity, and lines of credit remain well below pre-crisis levels. Home values in Nevada fell more than 60% from their peak.
Nationally, new HELOC originations are down more than 80% from their peak, but the slowdown stabilized and began to increase over the past year, according to the report (click on the graph below to expand).
"Much of this lending is being spurred by regional and community banks that managed to avoid the excesses of their larger peers. With house prices at or near their bottom, lenders are finding opportunities to make loans to highly qualified borrowers," analysts at Moody's and Equifax said.
During the boom, these loans were used as "piggyback" mortgages with the first lien in order to avoid insurance and make a smaller – if any – down payments. Analysts said this type of structure is unlikely to return to any prominence.
The Office of the Comptroller of the Currency recently warned a large amount of HELOCs written during the boom will reach the end of their draw period in 2014, meaning banks will be dealing the risk of boom-period equity lines for years to come still.
Today, HELOCs are being used primarily for a different reason. For the most part, investors and new homeowners are using home equity lending in Florida, Nevada and Michigan to rehabilitate and remodel homes.
"Home equity lending is unlikely to resume the fever pitch it reached during the housing boom, but its gradual recovery is an important indicator of the health of credit markets," according to the Moody's and Equifax report.