American homeowners held $17.5 trillion in mortgage equity in the third quarter, but lenders and servicers are struggling to retain borrowers looking to tap that wealth, according to the latest ICE Mortgage Monitor.
Servicers retained just 27% of refinancing borrowers during the quarter, down four percentage points from Q2, while cash-out refinances accounted for 75% of refinance-related loan losses to competitors, ICE reported Monday.
Retention among cash-out refinancers held steady at 26%, but fell to just 15% among borrowers refinancing mortgages originated in 2019 or earlier. Those older cash-out loans alone accounted for 35% of all refinance-related loan losses.
The findings highlight how borrowers seeking access to equity are willing to move beyond their existing servicers, even when refinancing means surrendering a historically low mortgage rate.
"Homeowners are sitting on substantial housing wealth, with 2.4 million mortgage holders now holding at least $1 million in equity," said Andy Walden, head of mortgage and housing market research at ICE. "In a higher rate environment, cash-outs are making up a greater share of refinances, with those homeowners giving up historically low mortgage rates and taking on higher monthly payments to tap into their equity."
Banks Lose Ground in Refinance Retention
The full report reveals a substantial gap between bank and nonbank servicers.
Banks retained just 10% of refinancing borrowers in Q3, down four percentage points to a two-year low. Nonbank servicers retained 35%, down three percentage points, giving them a retention rate 3.5 times higher than banks.
Retention among rate-and-term refinancers also weakened, falling nine percentage points to 30% as higher mortgage rates reduced refinancing incentives.
The composition of refinance activity has shifted considerably since earlier this year. In the first quarter, rate-and-term refinances involving recently originated mortgages were the primary source of servicer loan losses. By Q3, those loans accounted for just 15% of refinance-related losses, while cash-out transactions dominated.
"Traditional rate-based retention strategies aren't effective for borrowers who are motivated by access to equity rather than interest rate savings," said Bob Hart, president of mortgage technology at ICE. "To retain these borrowers, servicers need better visibility into their equity positions and the ability to engage them before they look elsewhere."
Home Equity Reaches Third-Quarter High
Mortgage holders collectively held $17.5 trillion in equity during Q3, up 1.4% from a year earlier and a record for the third quarter.
Average tappable equity, the amount homeowners can access while maintaining a 20% equity cushion, reached $204,000 per borrower, an increase of $16,600 from a year earlier.
The number of mortgage holders with at least $1 million in equity climbed 6% year over year to nearly 2.4 million, while almost 9 million held $500,000 or more.
California accounted for 49% of the nation's equity millionaires, followed by New York with 189,000, New Jersey with 141,000, and Florida with 104,000.
Cash-out refinances have remained relatively resilient despite elevated borrowing costs, accounting for approximately one in seven rate locks in recent weeks. Purchase loans represented roughly 80% of locks, while rate-and-term refinances fell below 5% in early October.
Meanwhile, adjustable-rate mortgages accounted for more than 10% of early October locks, their highest share since October 2022, as borrowers responded to widening discounts relative to 30-year fixed-rate loans.
What It Means
ICE's findings point to continued demand for equity-based financing even among homeowners with low-rate first mortgages. Nearly half of active mortgages still carry rates below 4%, yet some borrowers are willing to refinance at substantially higher rates to access cash.
The trend also reinforces the growing importance of home equity products. Industry executives expect HELOC and closed-end second-lien lending to expand in 2027 as homeowners seek alternatives to replacing their existing mortgages.
For brokers and LOs, that creates opportunities to evaluate cash-out refinances alongside second-lien financing, particularly for equity-rich borrowers whose existing mortgage rates are well below current market levels. The cost of replacing a first mortgage versus adding a second lien can materially change the financing decision.
