A revived market for Home Equity Lines Of Credit (HELOCs) is fuelled by quickly growing property values and the fact that roughly two-thirds of borrowers with at least some home equity have mortgage rates below 4% and would not profit from refinancing. Through a cash-out refinance, HELOCs enable homeowners to access the equity in their homes without taking on a substantially higher first-lien mortgage. According to Freddie Mac’s most recent weekly Primary Mortgage Market Survey, as of August 11, the average interest rate on a 30-year fixed-rate mortgage was 5.22%.
The second-quarter 2022 Household Debt and Credit Report from the Federal Reserve Bank of New York reveal that HELOC limits increased by $18 billion in the second quarter of this year, the first significant increase since 2011 and a sign of a rise in new originations. For the second quarter, HELOC balances totaled $319 billion, according to a Federal Reserve report.
According to Rick Sharga, executive vice president of market intelligence at ATTOM, it’s not surprising that the percentage of equity-rich properties is the greatest we’ve ever seen and that the number of substantially underwater loans is the lowest after 124 months in a row of home price increases. However, homeowners will likely continue to add to the record amount of equity they have for the rest of 2022, even though home price appreciation appears to be slowing down due to increased interest rates on mortgage loans.
The loans are normally held on balance sheets. Still, there have been a few private-label securitizations involving HELOCs this year, according to John Toohig, a managing director at Raymond James. He also said that HELOC loan buyers include banks, credit unions, money managers, and others. To read more on HELOCs and how fast they are gaining traction, click here.
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