Rising Originations, Vibrant Capital Markets, Bright Outlook In Q3 Home Equity Finance Study

Home Equity Lending News LLC (HELN) has released the Q3 Home Equity Study sponsored by Curinos. The 45-page report found that loan originations increased and capital markets strengthened during the third quarter, while the outlook is positive.

The study found that U.S. lenders lifted third-quarter home-equity line-of-Credit (HELOC) production by nearly $6 billion from the third-quarter 2023 to $55.4 billion. Much of the new originations were secured by Golden State properties. The share of small banks reporting stronger HELOC demand was 10 percentage point wider than at large banks. 

“While available and tappable equity continue to reach new peaks, closed-end second (CES) loans and HELOC utilizations are more driven by rate and consumer confidence,” said HELN Executive Director Vikram Gupta. “With the elections behind us and a well telegraphed Fed funds rate outlook for 2025, consumers will likely accelerate deferred home improvement projects and consolidate credit card debt thereby increasing home equity originations in 2025.”

Owners of HELOC assets from three vintages are vulnerable to losing many of those borrowers to competitor refinances as a wave of draw expirations approach. In addition to payment shock, “These borrowers will also lose draw access to their credit line, which intensifies their cash flow situation alongside the payment shock of their new monthly amortized payment,” said Ken Flaherty, senior manager, retail lending at Curinos.

Capital markets for home-equity products are vibrant. Residential mortgage-backed securities issuance of CES loans, HELOCs and home-equity investment (HEI) contracts came to $4.4 billion during the third quarter, soaring from the same three months in 2023, when just $1.4 billion in home-equity issuances were tracked. Nearly $600 million in capital commitments were secured by two HEI providers, while another secured a new warehouse line.

Interest rates on bank-owned CES loans were 50 BPS higher than at credit unions. A 20-basis-point spread between the two types of depositories was recorded for HELOCs rates. Weighted-average coupons (WACs) on home-equity issuances were 10.3% in the third-quarter 2024, falling 20 BPS from a year earlier. CES WACs dropped 34 BPS from the third-quarter 2023 to 10.0%.

Recent Federal Reserve actions are more likely to benefit rates on home-secured credit lines — the fastest-growing consumer debt — than on CES loans.

HELN Executive Director Ralph Armenta said, “I believe that mortgage rates will shift modestly downward in the first half of 25’ so long as retail gas prices lead the way. But the tectonic reduction will be in all things compliance; dimming switches are being pre-ordered for the CFPB.”

Three rules and potential regulations, as well as several legal actions, are being closely monitored by industry stakeholders.

The outlook for the home-equity sector is bright. Many don’t see Fed rate cuts as a threat to home-equity originations next year, with some predicting a significant pickup. Home improvements are expected to increase by mid-2025. The outlook for home-equity issuance also remains strong. Expectations for mergers and acquisitions in the home-equity space is mixed. One player predicts that HEI contracts will be used for down payment assistance. Delinquency is expected to hold steady.