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On the Attack: The GSEs Under Siege

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Th e M Rep o RT | 27 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t ORIGINATION the latest ORIGINATION HelOc lending on the rise Consumers are taking advantage of home equity at a greater rate. H ome equity lending made solid strides in the last year but still has a lot of ground to cover to return to pre-crisis lev- els, housing data firm RealtyTrac said in a recent report. In its first-ever U.S. Home Equity Line of Credit (HELOC) Trends Report, the company revealed that lenders originated an estimated 797,865 HELOCs in the 12 months ending in June, up 20.6 percent from the prior period and the highest level since the year ending June 2009. For the first eight months of 2014, RealtyTrac reported HELOCs made up 15.4 percent of all loan originations nation- wide, a post-crisis high. "The recent rise in HELOC originations indicates that an increasing number of homeowners are gaining confidence in the strength of the housing recovery and, more importantly, have regained much of their home equity lost during the housing crisis," said RealtyTrac VP Daren Blomquist. According to the company's data, nearly 10 million home- owners nationwide have at least 50 percent equity in their homes, representing about 19 percent of all mortgaged homeowners. Blomquist said the rebound in HELOCs also reflects a shift in focus among lenders away from home purchase and refinance offerings and toward a product borrowers might be more inter- ested in taking advantage of. Despite the build-up in HELOC volumes over the last two years, originations remain 76 percent below their peak in 2005–2006, when they accounted for nearly a quarter of lending activity. Among the country's 50 largest metros with HELOC data avail- able, 49 posted annual increases in loan volume for the year ending in June, led by Riverside- San Bernardino (87.7 percent), California; Las Vegas (85.1 percent), Nevada; Cincinnati (81 percent), Ohio; Sacramento (65.1 percent), California; and Phoenix (60.1 percent), Nevada. Compared to 2006, how- ever, HELOCs were down in 49 markets, including several of the metros posting the highest gains in the last year. In Riverside-San Bernardino, for example, HELOC originations in 2014 were down 93 percent from their pre-crash peak, while originations in Las Vegas were down 92.9. For the second quarter, home equity lines of credit led in gains, totaling $35 billion—up 25 percent over the same period last year. Over the last 12 months, HELOC originations totaled $120 billion, marking a 27-percent increase from the prior period. According to Experian, HELOC lending rose by double digits throughout all regions compared to a year ago, led by the West Coast, where new orig- inations were up 27 percent year- over-year. Most of that growth can be credited to California, which passed all other states in terms of HELOC dollars origina- tion with $5.9 billion. Also outperforming the other regions in Q2 was the Northwest, where HELOC volumes were up 15 percent, with New York contributing $2.2 billion in volumes. While HELOCs have helped fill the gap left by receding demand for refinancing, the mortgage sector has still felt the absence of refinancing profits since the end of the boom. "Home lending had an incred- ible two-year period from Q2 2011 to Q2 2013, with $4 trillion in mortgage origination volume; 71 percent of that, or $2.9 trillion, came from home refinancing," said Linda Haran, senior direc- tor of product management and strategy for Experian Decision Analytics. "A look behind those numbers tells us that the total dollars originated over the past four quarters are about $1.3 tril- lion versus $1.8 trillion, showing a 30-percent decrease in annual origination volumes from the refinancing boom." Despite the nearly one-third drop, Haran remains optimistic for the mortgage market as home purchase lending takes up a greater share. "This equates to new purchase activity increasing by 22 percent in Q2 2014 from last year, signaling that consumers are getting back into the market," she said. "In the long term, this appears to set up the market for continued purchases into spring and summer of 2015." Though purchase loan share is up, the percentages hide a concerning lack of activity. In a recent analysis, Capital Economics reported mortgage applications for home purchase loans in August were at a near 20-year low, with most applica- tions geared toward the high end of the housing market. "[T]he average value of a mortgage application for home purchase has increased far more than average house prices over the past couple of years," said Paul Diggle, property economist for Capital Economics. "It seems that only high earners with (pre- sumably) strong credit scores are currently confident enough to apply for mortgage finance."

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