The average Massachusetts homeowner may be comparable to a visiting uncle on Thanksgiving, around about the time he’s polished off his third portion of mashed potatoes and begins eyeing the couch – no matter how low today’s rates have dropped, they simply cannot tempt them with another heaping portion of refi, seeing as they’re all stuffed to the gills with the 3 percent first mortgage loans they’ve taken out in the past few years.
But bankers too may have a secret weapon to get those consumers back in action: home equity lines of credit, or HELOCs. With the median single-family home price up more than 17 percent this spring compared to 2012’s lows, according to data provided by The Warren Group, publisher of Banker & Tradesman, plenty of local homeowners now have equity to tap into for home renovations and helping to pay for college.
“I think HELOC are today’s new refinance transaction, because people who have refied at 3 percent are not likely to refinance that loan if they can help it. But there’s still need,” said John Broderick, senior vice president of consumer and home financing at Eastern Bank.
Figures Rising, Locally And Nationally
Recent reports from Harvard’s Joint Center for Housing Studies (JCHS), which tracks spending on home repairs and improvements, suggest that there’s considerable untapped demand, with renewed confidence in the housing market spurring many homeowners to launch projects deferred when home values were in decline.
“We’re projecting pretty healthy growth in home improvement spending through the end of the year,” said Abbe H. Will, a research analyst at the JCHS. Home remodeling spending in the U.S. is projected to peak at $158 billion in the third quarter of 2014, up 14.5 percent from the third quarter of 2013. “For a few years there after the crash, improvement spending was just kind of hanging in there. But [now] the market’s actually starting to grow again,” Will said.
Across the country, HELOC volumes were up 8 percent in the first quarter of 2014 to $13 billion. There are already signs of an uptick locally, as well. In Massachusetts, the number of non-purchase loans between $5,000 and $75,000 – the most common range for HELOCs – was up 30 percent from 2011 to 2013, according to data from The Warren Group, rising from an annual figure of 30,622 to 37,454. Those numbers still pale in comparison to pre-boom peaks of more than 100,000 in 2007, however.
No Secondary Market
But though banks may see potential in the sector, it’s not all rosy. Underwriting a HELOC may take just about as much time and effort as a refinance loan in today’s tightly regulated environment, but their overall volume is a lot lower, since homeowners only borrow a small portion of the home’s total value. That means banks have to complete considerably more loans to lend the same volume.
“I don’t know if it can make up for the lost refi business. I really don’t think it will. It’s helpful, but it’s nowhere near the volumes we were seeing before,” said Jay Tuli, head of retail banking at Arlington-based Leader Bank.
That doesn’t mean they don’t have their advantages, however. Since HELOCs are extended indefinitely, their interest rates shift with the market. That means banks face less interest rate risk when issuing them, helping them to more easily balance their portfolios, points out Tuli.
But for non-portfolio lenders, such advantages are obviated. Though there’s robust demand for HELOCs from consumers, Wall Street has yet to regain its appetite. That means for independent mortgage lenders, there’s no secondary market to sell the loans onto.
Though his firm does offer HELOCs, Brian Koss, managing partner at The Mortgage Network in Danvers, says they’re a loss-leader, used as a tactic to help secure a primary mortgage on better terms for the borrower. “There’s really no secondary market for them, and not a sign of one even opening. We’re doing them for nothing, basically, as a way to help get the first. We lose money on the actual transaction,” he said.
Large investors took large losses on all forms of secondary loans like HELOCs and second mortgages during the downturn, and they’re still wary of securitizing them, Koss believes. As the purchase market stabilizes, however, he hopes that the big banks will be pushed to reenter the space as they search for growth.
“The potential’s there, but the market hasn’t recognized it yet,” he said.
Email: csullivan@thewarrengroup.com
