U.S. homeowners today are armed with a record amount of home equity 𑁋 nearly $32 trillion, according to the latest data from the St. Louis Federal Reserve. Many of these homeowners are locked into historically low interest rates post-pandemic, which means they are unlikely to refinance. Indeed, amid the current high interest rates, they are looking to retain their low rates by staying put in their homes for longer than planned.
This offers originators a unique opportunity to step in and offer financing options — home equity loans and home equity lines of credit (HELOCs) — for homeowners looking to unlock their piece of this massive amount of equity. With demand for these financing products rapidly growing in the higher-interest-rate environment, originators can get in on the action and build their business pipeline by embracing innovation in the HELOC market.
HELOCs Through History
HELOCs have historically been offered by banks and financial institutions to grant homeowners access to their home equity, which can be used for various financial needs. These credit lines gained popularity in the 1980s due to high home appreciation and tax reform initiatives, but the Great Recession and housing crisis of the mid-2000s caused HELOCs to no longer be offered by big banks because home equity was difficult to determine.
Fast-forward to the current market, where the five-year cumulative national home price appreciation is at 52%, according to S&P Dow Jones Indices. Over 63% of homeowners have mortgages with rates between 2.5% and 4%, while 90% enjoy rates below 5%. Given these numbers, there’s been a sizable downward trend in loan volume, and the allure of refinancing has dimmed for many. This shift has led to a significant pivot toward HELOCs as a preferred method for homeowners to leverage their equity while retaining their first mortgage.
Modern-Day Solutions
With this surge in demand comes the opportunity for innovation. A prominent adaptation in the HELOC space is the introduction of bank statement HELOCs, which are tailored for self-employed borrowers who may otherwise have difficulty securing financing through stringent traditional qualification processes. Rather than using conventional underwriting processes, bank statement HELOCs allow applicants to use bank and financial statements to confirm income and net worth, broadening originators’ ability to serve a larger demographic of borrowers.
For many homeowners, bank statement HELOCs can bridge the gap between home equity and credit card debt, which has also reached record levels in the U.S. Many self-employed business owners could benefit from this alternative avenue, using their home equity to fund the areas that positively impact their lives 𑁋 business growth, home improvements and more.
Why Mortgage Originators Should Take Note
For mortgage originators facing reduced loan activity and challenging economic conditions, the developing HELOC market marks the opening of a significant floodgate 𑁋 a new opportunity to diversify offerings and generate growth. Today’s immense market potential, defined by heightened demand and an abundance of underserved borrowers, makes it imperative for originators to consider incorporating niche products like bank statement HELOCs into their lineup. This bold strategy positions originators as dynamic players in an evolving industry while allowing them to serve a wider range of clients with better service and results. By remaining agile and adopting products and services most relevant to borrowers in the current market climate, originators can build better relationships, grow new business, and secure long-term success in a highly competitive industry.
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