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Homeowners and Their Love for Low Mortgage Rates
“‘I’m in love with my mortgage, but I hate my house,’” mused Patrick Toohig, a managing director at Raymond James & Associates, at the Mortgage Bankers Association conference in New York. It’s a sentiment many homeowners understand all too well. They’re locked into low mortgage rates, which is rather stalling home sales and mortgage origination volumes. However, Toohig highlighted an intriguing opportunity: originating more HELOCs and other second-lien mortgages.
The Untapped Potential of HELOCs
There’s a colossal $17.6 trillion in available equity among U.S. homeowners, according to Julian Grey from ICE Mortgage Technology. Out of this, $11.5 trillion can be tapped with ease, leaving 20% of it intact. “Those are staggering numbers,” Grey said. It’s clear there’s opportunity aplenty for loan officers to consider HELOCs despite typically earning less compared to first-lien mortgages.
Rise of Fintech in the Market
Allen Price from BSI Financial Services noted that lenders are recognising the competitive chase for potential borrowers. Traditional banks are joined by fintech firms, which are now offering consumer loans and shared-equity products. These fintech firms excel in building data-driven models that predict value and default with remarkable accuracy.
Structuring Attractively Shorter HELOCs
HELOCs commonly feature a 10-year draw window with a 20-year amortization. But for securitized HELOCs, this draw window has been shortened to three years. Rating agencies favour less variability in balances. “The average life cycle on a HELOC is only about two and a half to three years,” said Ken Flaherty of Curinos. As such, many depositories are considering reducing the initial draw period.
The Future Lenders’ Perspective
With housing supply limited and mortgage rates remaining high, the market for first-lien mortgages has contracted. However, panelists propose that HELOCs could offer an alternative revenue stream for lenders, helping to generate leads for future loans. As Flaherty noted, “Lenders view this as a retention tool, ensuring borrowers return when the refi market returns.”
Conclusion: Embracing the New Reality
The burgeoning potential for HELOCs is prompting lenders to re-evaluate their offerings. They now view these as essential retention and relationship-building tools with borrowers. By strategically embracing such opportunities, they remain well-poised to navigate the evolving mortgage landscape and capitalise on future market shifts.
Key Information at a Glance
| Key Aspect | Details |
|---|---|
| Available Equity | $17.6 trillion (with $11.5 trillion easily accessible) |
| HELOC Structure | Commonly a 10-year draw with 20-year amortization; securitized often has a 3-year draw |
| Lender Strategy | Lenders using HELOCs as tools for retention and future lead generation |
| Fintech Influence | Growing presence with predictive data models, adding competition to traditional institutions |
Explore more developments in home lending and equity to stay ahead. Stay tuned as the mortgage industry continues to evolve.
