Banks Ramp Up Push for Home-Equity Lines


At hardware stores along the U.S. East Coast in recent weeks, TD Bank has been trying to persuade shoppers to think bigger than paint and plumbing supplies: The bank wants them to start taking cash out of their homes again.

The TD Bank tour bus, equipped with a galley kitchen and iPads where homeowners can start the application process, is part of a marketing push unusual for the mortgage industry since the housing bust.

As the broader mortgage market remains in the doldrums, banks are again touting home-equity lines of credit, which allow homeowners to draw down the equity in their home as they need the cash, as well as cash-out refinances, which involve taking cash out of a home while refinancing and ending up with a larger mortgage balance.

The effort is gaining steam as banks try to offset faltering mortgage originations and a refinancing wave that is fizzling out. Lenders are betting that offers for home-equity lines of credit, or helocs, will resonate with many borrowers whose home values are higher than they were just a couple of years ago and who need cash for renovations or other expenses after holding on to their homes for longer than expected.

Lenders extended just over $156 billion in home-equity lines of credit last year, the largest dollar amount since 2007, the beginning of the housing bust, according to new figures from mortgage-data firm CoreLogic Inc. That marks a 24% increase from 2014 and a 138% spike from 2010 when new approvals hit a low point.

The average line amount extended to homeowners last year reached a record $119,790, according to the firm, which tracks the data back to 2002..

Lenders are opening up their spigots,” said Sam Khater, deputy chief economist at CoreLogic.

The volumes are nowhere near the amounts given out before the housing bust, when lenders were approving more than $300 billion in credit lines a year. And housing analysts said it is unlikely that equity lending will return to those levels at any point in the near future.

The push from banks marks a reversal of strategy for many of them. Lenders scaled back on giving out second liens in the wake of the housing downturn, and many cut existing credit lines to avoid new defaults. Some lenders exited the home-equity lending market entirely.

The renewed appetite for these loans comes as property values continue to rise, increasing the number of homeowners who have equity available for withdrawal. Nationally, homes have regained nearly all of the value they lost during the housing bust and are hovering about 5% below their all-time peak in 2006, according to the S&P/Case-Shiller Home Price Indices.

J.P. Morgan Chase & Co. began reaching out to customers in January about the benefits of cash-out refinances, saying the move is often a smart way to tackle home repairs, debt consolidation and tuition payments. The campaign is a first for the bank, said a spokeswoman. PNC Financial Services Group Inc. ramped up home-equity-line marketing to existing customers last year and is planning a bigger push in April.

TD Bank, the U.S. unit of Toronto-Dominion Bank that has roughly 1,300 branches in the eastern U.S., opted for its marketing campaign this year in lieu of its usual drive to get traditional mortgage business in the spring homebuying season.

The bank “is placing a bet…home equity will play a bigger part of our business,” said Mike Kinane, senior vice president of home-equity lending at the firm.

Home-equity lines can be risky because they generally have variable interest rates, which could rise, leading to larger monthly payments for borrowers. Many home-equity lines are also structured in a way that allows borrowers to put off principal payments for the first 10 years. Once principal is due, payments can jump by hundreds or thousands of dollars. For banks, these payment shocks could lead to an increase in delinquencies many years after they have given out the loans.

Lenders are requiring higher credit scores this time around, and in most cases borrowers must have at least 20% equity left in their home after receiving the credit line. The average weighted FICO score for borrowers who received a home-equity line in the fourth quarter of 2015 was 781, on a scale that ranges from 300 to 850, compared with 742 for the same period in 2005, according to Black Knight Financial Services, a mortgage-data firm.

Vicki Boddy and her husband, Mike, received a $125,000 home-equity line of credit from J.P. Morgan in February, after their home was appraised at $447,000.

The Boddys have lived in the same home in Kenmore, Wash., for the past 23 years. They wanted to renovate the kitchen and other parts of the home, and chose to borrow rather than use savings to pay for it.

“Having the heloc means we can use the money in savings for reserves and a vacation to go visit our kids,” she said.

The three largest home-equity lenders increased originations last year. Bank of America Corp. gave out $13 billion in credit lines and home-equity loans, up 17% from 2014; Wells Fargo & Co.’s $12.5 billion in home-equity-line originations marked a 36% increase; and J.P. Morgan gave out $6 billion in home-equity lines, a 62% increase, according to trade publication Inside Mortgage Finance.



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