Homeowner’s Equity Expanded in Third Quarter

Second mortgage and home equity line of credit (HELOC) product lines increased in the third quarter. Find out what contributed to the growth and the projected future impact.

Third quarter data revealed that the most significant contributor to loan growth across all financial institutions in the past year has been second mortgages or home equity products. Numerous regions around the country experienced substantial increases in median home prices. Existing homeowner’s equity mushroomed, creating opportunities for borrowing, thus resulting in increased activity in the second mortgage and home equity line of credit (HELOC) product lines. Housing construction increased as consumers leveraged equity to expand living space or add-on that new garage.

Credit union loan growth was up 3.65% from the second quarter, led by a strong surge in fixed and adjustable home equity products, which were up by 6.88%. Leading the charge was home equity lines of credit, which mirrored national trends reported by FDIC. Home equity lines outstanding reached $34.4 billion, increasing 8.39% from last quarter, while the fixed rate home equities grew 4.89% to $25 billion. The trend should continue as year-to-date loan originations for adjustable rate home equity lines were at $15.8 billion at month-end September 2004. Originations for home equity lines should shatter last year’s record bookings of $16.7 billion. During the same period, originations for fixed home equities were $10.8 billion.

The graph below depicts the increasing disparity between fixed home equity loans versus HELOC balances outstanding: ​