Despite home equity lending volume remaining relatively flat in 2023 compared to 2022, outstanding home equity debt increased, according to the Mortgage Bankers Association’s (MBA) 2024 Home Equity Lending Study.
Speaking about analysts’ findings, MBA’s VP of Industry Analysis Marina B. Walsh, CMB said that the number of home equity originations did not increase by much, despite reasons to believe they might.
“Even with evidence of easing credit availability, with originations activity moving to lower FICO credit scores, higher combined loan-to-value ratios, the closings to applications pull-through rate dropped, indicating that home equity lenders were doing more work for fewer loans,” Walsh said.
Walsh further noted an uptick in home equity debt outstanding, despite 2023’s tepid volume growth, and potential opportunities for both sides of a loan.
“The elevated mortgage rate environment slowed servicing runoff, and utilization rates also increased,” Walsh said. “Given the substantial amount of accumulated equity in real estate, there is still untapped potential for home equity lending for lenders and borrowers.”
More specifically, covering data through December 31, 2023, MBA researchers found total originations of open-ended Home Equity Lines of Credit (HELOCs) and closed-end home equity loans increased to $2.13 billion per company in 2023, from $2.10 billion in 2022.
The MBA study also found the following of note:
- Home renovations slowed to 56% of volume in 2023 compared to 65% in 2022.
- Debt consolidation grew to 33% of volume in 2023 from 25% in 2022.
- More than 75% of originations, HELOCs and home equity loans both, were subject to an Automated Valuation Model (AVM) or Desktop Valuation, with most of both categories entailing an exterior/drive-by inspection or no inspection at all, while, conversely, 22% of originations required a full appraisal including an interior and exterior inspection.
- Lenders expect HELOC debt outstanding to increase 2.3% in 2024 and 4.8% in 2025; lenders expect home equity loan debt outstanding to increase 11.1% in 2024 and 7.2% in 2025.
- The average HELOC FICO score fell to 760 in 2023, from 769 in 2022; average combined loan-to-value (CLTV) for funded HELOCs at closing increased to 53% in 2023 from 51% in 2022.
- For home equity loans, the average FICO score fell to 742 in 2023 from 752 in 2022; average CLTV at closing increased to 62% in 2023 from 58% in 2022.
Further findings from this study are available via mba.org.
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