Spring brings with it the promise of renewal or, in the case of many homeowners, renovation. To many that means drawing on the equity in the home, and for many of them, that means the home equity line of credit.
Banks are warming up to the HELOC market this spring, according to a recent article in the Wall Street Journal that notes one —TD Bank — even has a tour bus hitting big hardware stores on the East Coast with an RV complete with a galley kitchen and iPads for starting the application process.
The WSJ report says that according to CoreLogic trackers, U.S. lenders extended just more than $156 billion in HELOCs last year, the most since the housing bust began in 2007. That was up 24% from a year earlier and a 138% jump from the 2010 low. That’s far from the $300 billion a year seen before the bust, but still, “lenders are opening up their spigots,” Sam Khater, deputy chief economist at CoreLogic, told the newspaper.
Of course, HELOCs require HE, and home values are continuing their ascent from the ravages of the recession. According to the S&P/Case-Shiller U.S. National Home Price Index, prices were up 5.4% year-over-year in January, after hitting new record highs in some cities (Denver, Dallas, Boston, and Portland, OR).
The market also is good for Mountain America Credit Union ($5.1 billion, West Jordan, UT), which was 66th out of the 1,541 credit unions of more than $100 million in assets who reported “other real estate lending” in their 5300 reports for the fourth quarter of 2015, according to Callahan data. That “other” includes home equity lending.
“The recent increase in home values has positively affected our HELOC development, but such growth doesn’t happen on real estate values alone. Gas prices are down and consumer confidence is up. These have contributed positively, too,” says Bret Butterfield, MACU’s vice president of home equity lending.
Such success also takes a focus on “little things which have produced big results,” Butterfield says.
“We have a great branch team that is focused on helping our members with HELOC benefits as debt consolidation and interest rate savings," he says. "Our underwriting team goes out of their way to understand the smallest details in each loan request in order to make decisions that are beneficial to both the credit union and the member. This may sound simple, but I think we do this at such a high a level, that it's the key to our success."
Riding The Wave Of Refi Lite
MACU reported a portfolio of $360.4 million, up 35.5% from the $265.9 million in the final quarter of 2014. Credit unions nationally originated $26.4 billion in HELOCs in 2015, up sharply from the $22.9 billion in 2014, giving them a portfolio of $75.4 billion in that product as the year ended.
The top 10 each reported growth of 275% to more than 500% year-over-year, although it’s unclear how much of that was making loans or buying them. For instance, one credit union that reported more than 300% in origination dollar growth says that was primarily from buying loan participations.
Bob Dorsa, president/CEO of the American Credit Union Mortgage Association, describes HELOCs as “refi lite. They’re glorified consumer loans secured by real property.” And they’re often marketed without origination points and other fees, including appraisals.
Dorsa says his 225 or so members “are ahead of the curve. They’re already accepted that refis are on the downturn and trying to put together their game plan to stay viable to their membership and to their communities.”
Dorsa also says he’s increasingly seeing credit unions divide their home equity and first mortgage lender into different teams for operational and compliance reasons.
Another attraction: HELOCs typically have much larger potential balances than car loans — the average was $119,000 last year according to CoreLogic — and houses don’t usually depreciate like vehicles do.
Also, many credit unions should have the money to lend, given that the movement’s average loan-to-share right now is in the low 70s.
“The Lowe's and Home Depot's of the world are doing us a world of good in the home repair mode,” Dorsa says. “I know I live in a house that’s 30 years old and we just redid some bathrooms for a tidy sum.” Dorsa lives in Las Vegas, NV, and says the opportunity may even be better in Midwest and Northeast markets with a lot of much-older home stock.
“My main conclusion now is that you obviously need to do home equity and mortgage lending. There are only so many indirect car loans you can make,” Dorsa says.
“If you don’t grow loans, you don’t grow income, and if you don’t grow income, you’re going to go out of business,” he adds. “That’s just the way it works out.”