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Home Equity Lending Volume Rose in 2022

July 25, 2023 MBA Research Press Release Residential

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Falen Taylor

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Home Renovations Driving Borrower Demand

WASHINGTON, D.C. (July 25, 2023) – Originations of open-ended Home Equity Lines of Credit (HELOCs) and closed-end home equity loans increased 50 percent in 2022 compared to two years earlier. This is according to the Mortgage Bankers Association’s (MBA) Home Equity Lending Study, released for the first time since 2020.

“Home renovations and remodeling drove demand for home equity products in 2022, with roughly two-thirds of borrowers citing it as a reason for applying for a home equity loan. Other borrower reasons were for debt consolidation (25 percent) and emergency cash management or other (10 percent),” said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis. “The housing inventory shortage, combined with home-price appreciation and a low-rate first mortgage, make home renovations an attractive alternative for many homeowners who are looking to improve their spaces. Additionally, a HELOC or home equity loan is one way to finance big home projects while receiving a tax advantage through the deductibility of mortgage interest.”

Added Walsh, “Given the nearly $30 trillion of accumulated equity in real estate,[1] there is untapped potential for home equity lending for lenders and borrowers. Respondents said consumer education, technological innovation, speed to delivery, and tailored products and marketing for specific customer segments are important initiatives for lenders to realize this potential.”

Select findings from MBA’s 2023 Home Equity Lending Study (covering data through December 31, 2022) include:

HELOCs:

  • Average HELOC commitment volume (total credit offered) was $2.4 billion per repeater company in 2022, up 41 percent from $1.7 billion in 2020.
  • Weighted average HELOC loan balances on outstandings rose from $108,231 at the beginning of the year to $112,113 at year-end.
  • HELOC utilization rates (dollar volume of outstandings compared to maximum credit facility) improved in 2022 when examining the rates across origination vintage-year cohorts. For example, average utilization at origination was 29 percent in 2020, 28 percent in 2021, and 30 percent in 2022.
  • Irrespective of origination year, average HELOC utilization based on dollar volume was 34 percent in 2022, compared to 40 percent in 2020. The percentage of HELOC accounts with no outstanding balance as of year-end 2022 was 31 percent. The percentage of HELOC accounts funded to the contractual limit was 3 percent.
  • The credit profile of the average HELOC borrower changed in 2022. The average FICO score fell to 769 in 2022 from 780 in 2020. Average combined loan-to-value (CLTV) for funded HELOCs at closing dropped to 51 percent in 2022 from 54 percent in 2020, due in part to strong home-price appreciation nationwide.
  • On an annual basis, lenders expect HELOC debt outstanding to increase 8.2 percent this year and 9.9 percent in 2024.
Home Equity Loans:

  • Average home equity loan originations were $780 million per repeater company in 2022, up 166 percent from $293 million in 2020
  • Weighted average home equity loan balances on outstandings rose from $52,653 at the beginning of the year to $61,114 at year-end.
  • The credit profile of the average home equity loan borrower changed in 2022. The average FICO score fell to 752 in 2022 from 768 in 2020. Average CLTV at closing dropped to 58 percent in 2022 from 65 percent in 2020.
  • Lenders expect home equity loan debt outstanding to increase 11.4 percent in 2023 but decrease 5.6 percent in 2024.
MBA’s Home Equity Lending Study for lending and servicing open-ended HELOCs and closed-end home equity loans was conducted in the spring of 2023. MBA collected data from 20 member companies — including large banks, community banks, and credit unions — representing $37.8 billion in originations volume for 2022; $211.1 billion in maximum credit extended to borrowers as of December 31, 2022; and $81.1 billion in outstanding borrowings as of December 31, 2022. The report includes benchmarking data such as volume and product mixes, utilization rates, operational metrics, and growth expectations.

Media wishing to view a copy of the summary report should contact Falen Taylor at (202) 557-2771 or [email protected]. To purchase the report, call (202) 557-2943. The reports can also be purchased on MBA's website by visiting www.mba.org/heloc .

[1] Source: Board of Governors of the Federal Reserve System (US), Households; Owners' Equity in Real Estate, Level [OEHRENWBSHNO], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/OEHRENWBSHNO, July 21, 2023.