TheMReport — News and strategies for the evolving mortgage marketplace.
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Th e M Rep o RT | 23 Feature T he home equity sector is recovering. Lines of credit originated by lenders rose more than 20 percent in 2013 to $90.5 billion, according to a recent Equifax National Home Trends report. As home prices stabilize and appreciation returns, the opportunity for equity lending returns, as well. Rising equity is met with a rising demand for home equity loans, and this presents an opportunity for those lenders able to mobilize to meet this demand first. As a long-time provider of services for every stage of home equity loan origination, we are seeing lenders re-enter the market. Many lenders view home equity loans as a source of growth because of the number of homeowners who have refinanced at historically low mortgage rates over the past few years. This leaves very little incentive for these homeowners to refinance into a larger mortgage if they want to draw on any home equity, because they would have to give up that low rate. This creates even more support for the return of home equity lines of credit (HELOCs). As lenders return to home equity, they are doing so with les- sons learned from the practices of the mid-2000s. At that time, homeowners could borrow from 100 to 125 percent of their home's value with the expectation that prices would continue to rise. As an industry, we found out the hard way that prices don't always rise on a consistent and anticipated trajectory. Fast- forward to today. In areas where home prices are appreciating and home equity is growing, lenders are reasonably dialing back offers to 80–85 percent of the home's value to protect not only themselves, but the homeowners, too. Lenders interested in capitalizing on the re-emergence of home equity are taking a calculated, compliance-focused ap- proach. For the lender, that means making an investment in their transactions by selecting an experienced title service pro- vider with centralized operations, comprehensive tools to assess and mitigate risk, and the ability to support these components with a real insurance solution specifically geared toward equity risk. A decentralized loan quality and consumer experience, where the lender does not have a direct way of managing the solution at each stage of the underwriting process, could create additional exposure and liability. This can occur with some insurance alternatives in which title reports are produced and backed by coverage from insurance companies with little or no experience in the mortgage industry, or from companies By Kevin Wall, president of First American Mortgage Services