HEL’s Outstanding to Top $1 Trillion

At 10 percent of overall consumer lending, home equity is already the nation’s largest segment of nonmortgage lending to consumers and it will continue to grow, according to TowerGroup’s recent home equity report. The research outlines advice and ideas the home equity sector should consider as the new year approaches.

Home equity loans outstanding will increase to $1 trillion from last year’s estimated $900 billion, TowerGroup predicts. Of the 2005 total, new volume could represent $551 billion, rising from the estimated $431 billion in the previous year, according to the report.

“Volume was driven not just by the decade’s overall market factors of rising home values and low interest rates but by the insightful strategies of players dedicated to the category of home equity lending,” TowerGroup said in the report. But to “maintain the volume as conditions change, players will need to have an integrated plan for implementing new strategies and tactics.”

While automated underwriting has supported rapid growth in home equity lending, it should be employed outside of the origination process and into the life of the loan to target customers for products such as line increases.

TowerGroup predicts the share of first lien refinances will reduce to 39 percent from 44 percent in 2004.

“Rising rates do not necessarily mean homeowners will be refinancing the home equity line or loan into a first mortgage,” TowerGroup said in the report. “For many who locked in low rates on first mortgages, the home equity line of credit, or HELOC, still represents a low-cost and convenient way to borrow.

“Lenders should be focused on providing new options and features on home equity products both to entice current customers to keep the HELOC open and to attract new business.”

Product options that “can maintain customers’ balances and loyalty,” and make home equity a better option for consumers already in low-rate first mortgages include line increases, fixed-rate loans within lines, increased access methods such as credit cards, and interest-only options within a home equity line of credit, according to the report.

TowerGroup believes HELOC spending will increase during the holidays and advised lenders to do seasonal promoting of home equity products to complement consumers’ desire to use cash for purchases at year end, consolidate debts after New Year, and pay taxes in the spring.