- Two-thirds of borrowers indicated home renovations and remodeling projects were the reason they applied for a home equity loan
- One-quarter said it was debt consolidation
- Emergency cash management or another reason cited by 10%
According to industry analysts, a newly-released study showing a rise in Home Equity Lines of Credit (HELOCs) points to an "untapped" opportunity for mortgage originators.
The Mortgage Bankers Association’s (MBA) Home Equity Lending Study, released this week for the first time since 2020, indicated that originations of both open- and closed-ended HELOC loans increased by 50% in 2022 compared to two years earlier.
Roughly two-thirds of borrowers said home renovations and remodeling projects led to applications for home equity loans, while about one-quarter gave the reason of debt consolidation, and 10% cited emergency cash management or another reason.
“The housing inventory shortage, combined with home-price appreciation and a low-rate first mortgage, make home renovations an attractive alternative for many homeowners who are looking to improve their spaces,” MBA Vice President of Industry Analysis Marina Walsh said. “A HELOC or home equity loan is one way to finance big home projects while receiving a tax advantage through the deductibility of mortgage interest.”
With about $30 billion in accumulated real estate equity, Walsh added, HELOCs present an “untapped” opportunity for lenders.
Survey results pointed to several areas lenders should focus on, including consumer education, technological innovation, speed to delivery, and tailoring products and marketing to specific customer segments.
Average home equity loan originations were $780 million per repeater company in 2022, up 166% from $293 million in 2020.
The 2022 study indicated a 41% rise in total credit offered during that two-year timeframe, as the average HELOC commitment volume was $2.4 billion per repeater company in 2022 versus $1.7 billion in 2020.
Outstanding HELOC debt is expected to increase by 8.2% this year and 9.9% in 2024.
Lenders expect outstanding home equity loan debt to rise 11.4% in 2023 but decrease 5.6% in 2024.
The credit profile of the average home equity loan borrower changed in 2022. The average FICO score fell to 752 in 2022 from 768 in 2020. The average combined loan-to-value ratio at closing dropped to 58% in 2022 from 65% in 2020.
The study included data from 20 MBA member companies, representing $37.8 billion in origination volume for 2022; $211.1 billion in maximum credit extended to borrowers as of December 31, 2022; and $81.1 billion in outstanding borrowings as of Dec. 31, 2022.