Closed-end seconds lead overall home equity loan growth

Closed-end home equity loan annual growth outpaced its line of credit cousin in the fourth quarter, increasing 13% above its high point from a year ago, the TransUnion first quarter Home Equity Trends Report found.

Total home equity origination, in which TransUnion counts first mortgage refinance activity as well (although it does not distinguish between types), had 23% growth to 720,000 accounts at the end of the fourth quarter from the same period in 2023; because of a reporting lag, this and certain volume data is one quarter behind the other information in the report.

READ MORE: Home equity lending has strong two-year runway ahead

"A deep understanding of industry dynamics within the home equity market enables mortgage lenders to better identify homeowners who may benefit from home equity lending products — and to tailor their offerings accordingly," the TransUnion report said. "Leveraging tools that provide insights into a homeowner's available equity, such as combined loan-to-value metrics, is essential for executing effective, targeted marketing campaigns."

At the Mortgage Bankers Association's Secondary and Capital Markets Conference in May, panelists noted the growth in the product over the previous two years, while expressing optimism for continued expansion through the next 24 months.

How are borrowers tapping their home equity?

The total outstanding open-end and closed-end home equity accounts grew 5% annually in the first quarter, to 12.1 million. That is also up from 11 million in the first quarter of 2023 and 10.2 million one year before that. HELOCs have a 65% share, while home equity loans have a 35% share.

Home equity loan originations totaled 287,000 accounts in the fourth quarter, versus 254,000 for the same period in 2023.

Meanwhile, HELOCs grew 8%, to 268,000, up from 248,000. The largest share growth was in first mortgage refis, up 93%, but as other analyses have noted, those numbers were up from an extremely low base, to 165,000 accounts from 85,000 one year prior.

HELOC volume is being helped by interest rates for this product declining, a recent ICE Mortgage Technology report said.

Who is originating the most home equity products?

Credit unions had the largest share of HELOC originations in the fourth quarter at 36%, followed by large depositories at 28%, small depositories at 24% and nonbanks at 11%.

But for closed-end seconds, similar in nature to traditional first mortgages, nonbanks had a 56% market share, followed by credit unions at 25%, small depositories, 14%, and large banks at just 5%.

By loan amount, $32 billion of HELOCs were produced last year, with large banks and credit unions with similar shares of 33%, small banks at 26% and nonbanks at 8%. For seconds, $14 billion was produced, with nonbanks doing 36% of the volume and credit unions at 34%.

One reason why the MBA Secondary panel was bullish on home equity lending's immediate future was the amount of non-mortgage debt held by Americans.

The TransUnion report put that total at $790 billion at the end of the first quarter, up 6% year-over-year, with an average of $8,000 owed per homeowner. This is also up from the recent low of $508 billion in the first quarter of 2021.

How much total home equity is available?

TransUnion calculated tappable home equity at $21.1 trillion as of March 31, up 7% from the same day one year earlier and 62% over the same day in 2018.

The total number of homeowners with an equity position of at least 20% in their property is 85.9 million. They have a median $268,000 of tappable equity.

Over 6 million homeowners have over $1 million in available tappable home equity, according to TransUnion.

At the other end of the spectrum, 27% of low-to-moderate income households have a current loan-to-value ratio of 80% and are able to borrow from their equity.

Average home equity extracted for non-LMI homeowners was $252,000 in the fourth quarter, up 0.2% year-over-year, while the median amount of $185,000 was down by 3.1%.

For LMI households, the average extracted equity amount of $168,000 was up 0.3% versus the fourth quarter of 2023, while the median of $113,000 was 5.8% lower.

What percentage of their line are homeowners using?

While HELOC utilization is up from last year, it's down from the pre-pandemic era. As of the end of the first quarter, 57% of HELOC borrowers had used more than 20% of their available credit, versus 55% one year prior. However, the Q1 2025 share is three percentage points lower for the same three-month period in 2019.

The shifting need for cash finds 89% of borrowers taking a draw on their HELOC within the first six months of origination as of Dec. 31. On the same day in 2023, the total was 87%, while in the outlier year of 2020, it was just 80%, with the following year rising to 82%.

For the other three years TransUnion provided first quarter data for, 2018, 2019 and 2022, 86% had a draw within the first six months.

What can lenders do when the draw period ends?

There's an opportunity for mortgage lenders to refinance borrowers reaching their end of draw periods in the next two years.

The number of accounts that will no longer be able to take out proceeds is approximately 901,000 as of the first quarter, up 5% from one year prior.

Of those, 3% expired in the current quarter, 45% will do so in the next 12 months with the remaining 52% by March 31, 2027.

How well do home equity loans perform today?

Unlike during the financial crisis period, these products are performing well. At the end of the first quarter, 30-day lates were at 181 basis points for HELs and 81 basis points for HELOCs. This compared with 186 basis points and 79 basis points respectively as of March 31, 2024.

But in the first quarters between 2008 and 2013, early stage delinquency rates for the closed-end loans were over 6%, peaking at 9.43% in 2010. HELOC lates peaked at 291 basis points in the first quarter of 2010 as well.

Similar patterns were seen for both 60-day and 90-day late payments as well for both products. For the first quarter, 60-day lates for closed-end home equity products were 106 basis points, and 90-day were at 76 basis points.

HELOCs have a 47 basis point mid-stage and 35 basis point serious delinquency rate.