Despite the steep decline in collective home equity, mortgage lenders continue to issue new home equity line offerings.
Yesterday, Black Knight reported that homeowners lost $1.3 trillion in home equity in the third quarter alone.
The company said it was “by far” the biggest quarterly drop in dollar value on record and the biggest on a percentage basis since 2009.
Of course, total homeowner equity peaked as recently as May and is still north of $5 trillion, meaning mortgage lenders will be eager to offer related products.
And although total home equity among mortgage assets is now about $1.5 trillion lower than since its peak, it is still 46% higher than pre-pandemic levels.
Home equity down as home prices fall
while it seems a bit counterintuitive to launch home equity product in an environment of falling house prices, it needs to be put into perspective.
The same is true of the so-called “fall in house prices,” as the recent relatively large drawdown is also a drop in the bucket relative to recent gains.
Yep, home prices fell 0.52% in September, per Black Knight, the third straight monthly decline.
But annual appreciation was still up 10.7% from a year earlier, more than double the long-term norm.
You see, home prices have skyrocketed so much over the past few years that a double-digit drop means most homeowners are still sitting on a ton of equity.
As I wrote back in September, the national loan-to-value ratio (LTV) very low was 29.5% as of the second quarter.
While the recent slump in house prices will undoubtedly extend LTVIt still shows just how much equity the average American has.
Today, it has a 30-year fixed set at 2-4%, anywhere from 20-50% of available equity. Very different mortgage market.
Movement Mortgage and HomePoint Launch HELOC
Refinancing doesn’t make sense for most homeowners these days, even to tap their equity.
The long and short of it is that they will lose their super low fixed rate on their first mortgage, which would be a huge loss.
There are few reasons a homeowner would trade a 3% rate for a 7% rate.
So second mortgage have grown in popularity, as they allow homeowners to tap equity without having to forego the mortgage first.
HomePoint currently has HELOCs through its network of mortgage broker partners in 38 states and Washington, DC.
Borrowers can access between $20,000 to $400,000 of their home equity in the form of a line of credit with 5-, 10-, 15- or 30-year terms.
There is a draw period of 2-5 years, which means the home owner can borrow more the first few years before paying it back.
They must maintain at least 15% equity in their home, which tells us that the maximum CLTV is 85%.
It is available on owner-occupied properties of a unit, as well as on second homes and investment properties in a unit.
During this, movement hostagewhich bills itself as the country’s sixth largest retail lender, has partnered with Fig to launch its HELOC.
similar to LoanDepot’s Digital HELOCIt is a paperless process that allows approval in as little as five minutes and funding within five days.
Transactions will be recorded and stored on Figma’s Provenance blockchain, which they call “the leading public blockchain in financial services.”
While HELOCs are expected to explode in popularity, HELOC Rates The fed funds rate and corresponding prime rate remain high due to increases.
But from next year, interest rates on such products may start falling as inflation slows down.
By the way, only 3.6% of the approximately 53 million mortgage holders in the US are either under the water Or have less than 10% equity in their homes, about half of what they had before the pandemic.
Read more: Top HELOC Lenders in the Country