Rocket Mortgage, the nation’s largest lender. Loan Depot announced its plans to launch an all-digital HELOC in the fourth quarter of 2022. With the purchase and cash-out refinance volume tanking lenders are moving quickly to find new sources of revenue, and HELOCs appears to be the popular choice.
However, the future of HELOC originations is tenuous at best. Month-to-month housing market data shows home values are dropping on average by 13.5% in a number of markets and Fortune report that housing inventory has spiked by 100% in 137 regional housing markets. Consequently, despite the present bullish outlook, HELOCs may not be an option for most homeowners by the end of this year. Nevertheless, one thing is clear. Homeowner interest in extracting home equity is on the rise.
The question remains as to how strong the desire to extract home equity is among age-eligible potential reverse mortgage borrowers. The opportunity is certainly there. “I think it speaks to consumer interest in using home equity for their cash flow across the age spectrum as it continues to be the largest source of potential funds for most households,” said John Lunde, president of Reverse Market Insight in a recent Reverse Mortgage Daily column. Yet, reluctance among older homeowners to tap into their equity is strong.
Finance of America’s Home Equity Survey taken in early June found that 94% of homeowners born between the years 1928 and 1945 resisted the idea of tapping into home equity. And 89% of Baby Boomers born between 1946 and 1964 said they were unlikely to consider any home equity product. FAR’s survey concluded that 90% of respondents across all age groups expected their financial advisor would recommend tapping home equity if it was appropriate.
“While the reverse industry, by and large, has focused our efforts on educating folks on the benefits of reverse mortgages in recent years, there is far more education needed,” said Steven Sless, who heads the reverse mortgage division at Primary Residential Mortgage in Reverse Mortgage Daily. “Particularly to those in the financial services industries and even to local bankers who are finding themselves talking to more potential reverse mortgage candidates but often do not offer reverse mortgage products.”
In the final analysis, while HELOC availability is likely to fall off as the housing market continues to reset, HECM reverse mortgage loans will remain regardless. Where investors and lending institutions may choose to suspend HELOCs older homeowners will find Home Equity Conversion Mortgages as the more flexible choice that continues to offer favorable terms with no required principal and interest payments, and especially no payment shock found in HELOCs at the end of the draw period. Also, unlike a HELOC the HECM’s line of credit cannot be frozen or suspended when home values fall.
HELOCs may be the popular choice for many homeowners but it’s a vulnerable choice considering the loan’s vulnerability to a volatile housing market.
Additional reading:
[Reverse Mortgage Daily] What does a HELOC resurgence mean for reverse mortgages?
[HousingWire] HELOCs are now “raging back”
{Next Advisor] Half of Mortgaged Homes Are ‘Equity-Rich,’ But Borrowing With a HELOC Just Got More Expensive
[HousingWire] Rocket gets into the home equity game, joining rival nonbanks
No comment yet, add your voice below!