A new report predicts that borrowing against home equity is poised for growth. Lenders can maximize this opportunity by personalizing marketing based on how individual consumers use these loans.
From the first quarter of 2011 until the first quarter of this year, the S&P/Case-Shiller House Price Index ascended 42 percent. Home prices now stand higher than their 2005 housing boom levels.
During that same period, growth in home-equity levels outpaced the increase in home values.
Equity among U.S. homeowners — which previously peaked at $13.2 trillion in the first-quarter 2006 and hovered around $6 trillion between 2009 and 2011 — climbed to $14.4 trillion in 2017.
TransUnion, which discussed the details in its Emerging Opportunities in Home Equity Lending, says home equity now stands near $15 trillion.
“Several dynamics are creating a market ripe for home-equity origination growth, but a better understanding of how consumers use these loans may impact their interest in securing one,” the report said.
Joe Mellman,
senior vice president and mortgage business leader at TransUnion, explained in an accompanying statement that there are plenty of signs the market is ready for growth.
Roughly 2.9 million new home-equity accounts were originated during 2017, soaring from fewer than 1.6 million that were originated in 2011.
An estimated 70 million homeowners
would likely qualify for a home-equity product.
Home-equity lines of credit accounted for the biggest number of home-equity originations last year: 1.2 million. That was a 2.3 percent increase over 2016.
With 800,000 HELOCs nearing the end of their draw periods, many will seek to close on another transaction.
TransUnion noted that HELOCs
have historically had very low default rates.
Among home-equity borrowers, 91 percent use some portion of their proceeds for a major expense. This includes remodeling — which is likely to increase as escalating rates and home prices keep more homeowners in their current home..
Forty-one percent use home-equity products for debt consolidation.
“Increasing consumer debt makes debt consolidation an appealing option, and home equity can be the most economically attractive path to do just that,” Mellman, who authored the report, stated. “The recession caused a home equity lending pull-back, which all but eliminated consumer marketing and education.
“We think there’s an opportunity to re-introduce that education to consumers and help them evaluate how and when tapping home equity could make sense.”
Improving the rate or term on an existing mortgage through a home-equity refinance is done by 23 percent of home-equity borrowers.
Piggyback loans, which are closed concurrent with a first mortgage at origination — often to reduce the down payment — are used in 4 percent of home-equity transactions.
Finally, a home-equity product left undrawn and established as a ‘rainy day fund’ is used in 2 percent of cases.
The report goes on to provide guidelines for personalized marketing tailored to each individual customer.
“In today’s consumer-centric marketplace, consumers expect personalized offers addressing their specific needs,” Mellman concluded. “Studies show consumers are much less likely to find value in generic messaging and education. Utilizing a personalized marketing approach addressing specific usages consumers have in mind can help ensure a strong relationship between consumer and lender.”
