Residence fairness lending surges as shoppers consolidate debt

Home equity lending rose over the course of the past year as high interest rates kept borrowers away from traditional mortgage originations, according to a new TransUnion report.

The number of new lines of credit secured by home equity increased to 405,646 year-over-year, up 41% from 286,925, TransUnion reported in its latest Credit Industry Insights study, which records originations with a one-quarter lag.

The origination of home equity loans also surged in the third quarter of 2022, reaching a high not seen in over a decade. 

The loan count for the period was 322,537 for closed-end home equity products, representing a high not seen since 2010. It compared to 220,144 a year earlier, representing a 47% year-over-year gain.

“HELOCs and home equity loans continue to grow at unprecedented levels,” said Joe Mellman, senior vice president and mortgage business leader at TransUnion, in a press release.

The increase comes despite the fact that some measures suggest homeowners’ equity has been growing at a slower pace, plus traditional mortgage originations dropped by 56% to around 1.5 million loans from 3.4 million units between the third quarter of 2022 and 3Q 2021.

“Lenders who will benefit from this trend are those who have the ability to identify and reach homeowners who have equity available to tap and who also, either carry high interest rate debt that can be consolidated or own older homes that may warrant improvements,” Mellman said.

How long the trend will persist will depend on what stance federal monetary policymakers take going forward, said Michele Ranieri, vice president of U.S. research and consulting, in the TransUnion report.

“If more moderate rate hikes continue, it would be a good sign that the increases have

been working, and that some relief from high inflation may be on the horizon. Until then, we fully expect consumers to continue to look to credit products such as credit cards, HELOCs and unsecured personal loans to help make ends meet,” Ranieri said.

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