HELOC 2.0 – Q&A with Wolters Kluwer

1. Home equity seems to be one of the few bright spots in the mortgage world this year: what’s driving its popularity, and what does this mean for credit unions?

Last year was a “perfect storm” for first mortgages. Coming off what was the best year ever in terms of mortgage originations, the Federal Reserve raised interest rates seven times in 2022 to combat inflation. This virtually eliminated refinances and created strong headwinds in terms of affordability for the purchase market. The result was the sharpest drop in first mortgages since 2014. Meanwhile, home equity products—which had in recent years taken a back seat to cash-out refinances—suddenly were back in vogue. In 3Q, ATTOM Data estimated that home equity originations rose by 48% year over year.

There are two primary drivers behind this shift: the first is home equity growth. After two years of double-digit home price appreciation, U.S. homeowners have more than $11 trillion in tappable equity. More than 85% of all outstanding first mortgages currently have coupons of 5% or less. As you’d expect, homeowners are reluctant to refinance their once-in-a-lifetime first mortgage interest rates. But they still want the ability to access their equity, which is why, for the foreseeable future, HELOCs and HELs will be the products of choice when consumers need money for big-ticket items like home renovation, college tuition, debt consolidation, etc.

Rick Sharga, the head of Market Intelligence at ATTOM Data, spoke at a recent webinar put on by Wolters Kluwer. One of the points he made is that the pivot to home equity plays right in the sweet spot for credit unions. His exact words were: “HELOCs are right out of central casting for credit unions.”


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