{"id":27865,"date":"2023-06-26T20:59:27","date_gmt":"2023-06-27T00:59:27","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/helocs-are-back-cash-strapped-borrowers-are-tapping-into-a-33-trillion-pile-of-home-equity\/"},"modified":"2023-06-26T20:59:29","modified_gmt":"2023-06-27T00:59:29","slug":"helocs-are-back-cash-strapped-borrowers-are-tapping-into-a-33-trillion-pile-of-home-equity","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=27865","title":{"rendered":"HELOCs are back. Cash-strapped borrowers are tapping into a $33 trillion pile of home equity."},"content":{"rendered":"
\n

Goodbye pandemic refi cash-outs. Hello HELOCs?<\/p>\n

Home-equity lines of credit (HELOCs) and second-lien mortgages have been staging a notable comeback as U.S. homeowners look for liquidity and ways to monetize the pandemic surge in home prices, according to BofA Global.<\/p>\n

\n

It used to be that borrowers sitting on an estimated $33 trillion pile of equity built up in their homes could simply refinance and pull out cash, until the Federal Reserve\u2019s rapid rate hikes began squelching the option. <\/p>\n

Now, with mortgage rates above 6%, and the Fed penciling in two more rate hikes in 2023, cash-strapped homeowners have been seeking out alternatives to extract cash from their properties.<\/p>\n

While cash-out refinances tumbled 83% in the fourth quarter of 2022 from a year before, HELOCs rose 7% and home-equity loans grew 31%, according to the latest TransUnion data.<\/p>\n

\u201cBorrower demand remains high, particularly given household budgets have been pressured by rising food and energy costs,\u201d a BofA Global credit strategy team led by Pratik Gupta\u2019s, wrote in a weekly client note. <\/p>\n

Risky loans to subprime borrowers and home equity products helped precipitate the 2007-2008 global financial crisis and the era\u2019s wave of devastating home foreclosures.<\/p>\n

At the time, households had more than $1.2 trillion of home equity revolving and available credit (see chart), whereas the figure was closer to $900 billion in the first quarter of this year. <\/p>\n

<\/p>\n
<\/p>\n<\/figure><\/div>\n

The pandemic saw home prices surge, giving a big boost to home equity levels. The Urban Institute pegged home equity in the U.S. at $33 trillion as of May, up from a post-2008 peak of about $15 trillion.<\/p>\n

BofA analysts argued this time home equity products look different, with roughly $17 trillion of tappable equity across 117 million U.S. homeowners, and most borrowers having high credit scores and low rates.<\/p>\n

\u201cThe vast majority of that \u2014 $14 trillion \u2014 is from the cohort of homeowners who own their homes free & clear,\u201d Gupta\u2019s team wrote. <\/p>\n

Another $1.6 trillion of equity could be available from Freddie Mac and Fannie Mae borrowers, according to his team, which pegged an estimated 94% of all outstanding U.S. first-lien home mortgages now below 4% rates.<\/p>\n

Major banks own the bulk of home equity balances (see chart), led by Bank of America Corp.
\n BAC,
\n +1.23%<\/bg-quote>,<\/span>
\n PNC Bank
\n PNC,
\n +0.57%<\/bg-quote>,<\/span>
\n Wells Fargo,
\n WFC,
\n -0.05%<\/bg-quote>,<\/span>
\n JPMorgan Chase
\n JPM,
\n +0.24%<\/bg-quote>
\n and Citizens
\n CFG,
\n +0.35%<\/bg-quote>,<\/span>
\n according to the team, which notes several other major banks appear to have hit pause on their programs. <\/p>\n

A smaller portion of HELOCs and second-lien mortgages have been securitized, or packaged up and sold as bond deals, while nonbank lenders have been offering the products as well.<\/p>\n

Stocks closed lower Monday, taking a pause from a recent rally, as investors monitored weekend tumult in Russia. The Dow Jones Industrial Average
\n DJIA,
\n -0.04%<\/bg-quote>
\n was less than 0.1% lower, while the S&P 500 index
\n SPX,
\n -0.45%<\/bg-quote>
\n was off 0.5% and the Nasdaq Composite
\n COMP,
\n -1.16%<\/bg-quote>
\n fell 1.2%, according to FactSet.<\/p>\n

Related<\/strong>: The economy was supposed to cave in by now. It hasn\u2019t \u2014 and GDP is set to rise again.<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Goodbye pandemic refi cash-outs. Hello HELOCs? Home-equity lines of credit (HELOCs) and second-lien mortgages have been staging a notable comeback as U.S. homeowners look for liquidity and ways to monetize the pandemic surge in home prices, according to BofA Global. It used to be that borrowers sitting on an estimated $33 trillion pile of equity […]<\/p>\n","protected":false},"author":1,"featured_media":27866,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-27865","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nHELOCs are back. Cash-strapped borrowers are tapping into a $33 trillion pile of home equity. | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Goodbye pandemic refi cash-outs. Hello HELOCs? 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