Where does the market appear to be heading?
Currently there are roughly $750 Billion worth of outstanding HELOC (Home equity of line credit) balances. These outstanding HELOC balances were drastically reduced, down from over a Trillion dollars, with the refinance craze beginning in 2008 (which included the HARP programs). However, in 2012 and 2013 the volume of HELOCs began to increase again despite taking double-digit losses in the previous 4 years, due to a few different reasons:
- Many homeowners during the refinance craze refinanced into historically low rates, rather than doing a C/O refinance. It would be more prudent to take out a 2nd mortgage and retain the low 1st mortgage rate, especially as rates are now predicted to rise
- Recovering and Increasing real estate values are making it easier to qualify again for HELOCs
- The 10-year “reset” period for a huge number of HELOCs will be occurring in the next four years (2014-$30 billion, 2015-$52 Billion, 2016—$62 Billion and 2017--$68 Billion)—Chances are that a great number of these will be refinanced.
In 2013, $111 billion in new HELOCs were opened. In the fourth fiscal quarter of the year, new lending increased by 43% from quarter four in 2012, according to data from Experian-Oliver Wyman Market Intelligence Reports, and Experian’s IntelliView tool.
With the 1st mortgage market on a downturn, HELOCs may be a way for a financial institution to supplement its lending portfolio. HELOC balances are relatively low after the refinance “craze”. With low first rates, recovering home values, and enormous number of resets occurring over the next four years, HELOCs are looking more and more like a good thing to bet on in the future.