However, the home equity lending market has been relatively sluggish since interest rates began climbing in early 2022. The increased cost of borrowing has discouraged homeowners from tapping into their equity, despite the record levels available.
“Home equity lending has been sluggish since interest rates began their climb higher early in 2022,” Walden explained. “As the Fed raised short-term lending rates, accessing equity became more expensive for homeowners, evidenced by the anemic growth in such lending despite record levels of available, tappable equity.”
Walden suggested that potential Fed rate cuts, specifically the easing of short-term rates, could make home equity loans more attractive.
“Lenders would do well to prepare,” he said. “The ability to originate and service home equity loans alongside first lien mortgages will be key – to say nothing of using data-driven portfolio analysis to identify potential second lien customers.”
The report also pointed out that only a small fraction of homeowners—less than 325,000, or 0.60%—are underwater on their mortgages. However, some regions, particularly in Texas, Florida, and Louisiana, are experiencing rising rates of negative equity.
Source: mpamag.com