A Home Equity Line Of Credit loan (aka HELOC) was something people could not get enough of in the early 2000’s. They were our very own piggy bank; we all became rich because our properties grew in value and in turn we cashed out the equity and took the family on vacation. However, just like subprime lending and stated income loans, HELOCs have become relatively non-existent after the bursting of the housing market bubble. In fact by the mid 2000’s it was nearly impossible to find a mortgage lender willing to give you a line of credit, even if you had equity in your property and great credit. They had taken such a hit because of the mortgage defaults that the thought of lending money made them shake in their boots.
But of course our economy is cyclical, and so are the financial markets and it’s beginning to look like the worst is over and the housing market is slowly pulling itself out of the hole it’s been in for the past several years. We, in the real estate and finance industry, are starting to see HELOCs make a comeback; and banks are once again starting to make revolving lines of credit an option for homeowners. According to Moody’s, lending on HELOCs increased by 30% in 2012 and the research goes as far as suggesting that the increase will continue through 2013. In fact analysts are predicting that roughly $104 billion of equity will be lent this year alone!
While that is a great sign for the market overall, the majority of the big banks are still dealing with the defaults of HELOCs during the crisis, so my prediction is that we will see an increase in activity but maybe not quite as much as being touted. After all a HELOC is essentially a 2nd mortgage, as it sits in a junior lien position, which means that banks are taking a bigger risk and could be setting themselves up for a “restocking” of the bad loans they just worked so hard to get out of their portfolio. Reports vary, but since 2012 roughly $20 billion of bad HELOC debt has been written off – which is exactly what makes the $104 billion predicted for 2013 to be such a tough pill to swallow. While I do see to be pessimistic about the sudden return of this loan product, I am not. I would love nothing more than to see a significant increase in property values during 2013, and an increase in HELOC lending right along with it – I am just unsure if it will really be the giant surge that we are all hoping for!
My advice? If you have equity chase down a refinance and lock in a great rate, don’t wait around for HELOCs to make a grand entrance!