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Mortgage

Rocket gets into home equity game, joining rival nonbanks

High home prices make it increasingly attractive for lenders to invest in home equity products

Rocket Mortgage, the nation’s largest lender, is expanding its product portfolio to home equity loans amid a significant slowdown in mortgage origination volume.

After getting an appraisal on the home, homeowners can access between $45,000 and $350,000 of their home’s equity in a 10- or 20-year, fixed-rate loan, while maintaining at least 10% equity in their home, Rocket said Monday. 

Rocket is targeting American homeowners with high household debt and credit card balances but strong home equity positions

“In the current market, short-term interest rates have risen sharply – making it much harder to pay off credit card debt,” said Bob Walters, CEO at Rocket Mortgage. “With our new home equity loan, clients can improve their lives by having a payment they can more comfortably afford.”

U.S. credit card balances in the first quarter were $841 billion, $71 billion higher than the same period in 2021, according to a report from the Federal Reserve Bank of New York. The country’s total household debt stood at $15.8 trillion as of the first quarter of this year, which is $1.7 trillion higher than at the end of 2019. The Federal Reserve estimates Americans have about $28 trillion in home equity.

While home price growth is expected to slow in the coming months, it’s still higher than a 5% annual home price appreciation rate, making home equity products an attractive option for lenders to invest in. 

Last month, Guaranteed Rate rolled out a digital home equity line of credit (HELOC) that offers customers a fixed rate and a fixed term of up to 30 years. Homeowners can later draw from the line of credit for two-to-five years, depending on the term selected at then-current market rates. (The Chicago-based lender also debuted an unsecured personal loan product.)

On a home equity loan, the lender disburses a lump sum upfront to the borrower, who then pays the loan back in fixed-rate installments. A HELOC, which allows homeowners to access their equity without refinancing their primary mortgage, is a revolving line of credit that allows borrowers to withdraw as needed, with a variable interest rate.

Depository banks have dominated home equity lending for years, but nonbank lenders seeking volume are increasingly targeting the space.

loanDepot, another top nonbank, plans to launch its all-digital HELOC by the fourth quarter of 2022. The lender’s HELOC product is the first offering of its mello business unit, which was created in March that focuses on developing mortgage-adjacent lending products and services. 

New Residential Investment Corp. also plans to launch a HELOC product, the firm said in its first quarter earnings call, as part of its strategy to address the origination slowdown. 

“Since over half of our customer base now has at least 40% equity in their home, we are launching a new HELOC product that will target our servicing customers and allow homeowners to retain their existing low-rate mortgage while allowing them to tap into their home equity for home expansion renovations or otherwise,” said Baron Silverstein, president of Rocket.

Figure, a lender that focuses on providing HELOCs, said the company’s HELOC product surpassed $325 million in funding volume from the previous month. Setting new records for eight consecutive months, June figures represented a 300% year-over-year increase, the firm said.  

Data from Inside Mortgage Finance again confirms Rocket as the largest mortgage lender in the U.S. by volume in the first six months of 2022. According to IMF data, Rocket generated $37.5 billion in originations in the second quarter, down 30.5% quarter over quarter. 

In the first three months of this year, Rocket reported $54 billion in closed loans, down from $75.8 billion in the previous quarter.

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