Jerry Schiano is co-founder and acting chief executive
officer of Spring EQ. He has more than 25 years of entrepreneurial experience in the mortgage industry, including founding and successfully leading multiple lending organizations.
With Sprint EQ, Schiano is executing a vision of leveraging
technology to provide a user-friendly, digital home equity
lending process — balancing human interaction and expertise with technical efficiencies to ultimately provide a
superior experience for the customer. Reach Schiano at
email@example.com or (215) 391-1202.
The Home Equity Loan Market Is Rising
Increasing rates and home prices are creating expanded opportunities
for second-mortgage products
By Jerry Schiano
Like rust, change never sleeps, and there’s big change happening in the lending industry. As home values and first-mortgage rates continue to rise, borrowers are starting to shift away
from high-rate, cash-out refinancing to meet their financial needs and toward second-mortgage home equity
lending, such as home equity lines of credit (HELOCs).
Make no mistake. The refinance market is poised for
a strong reset toward second-mortgage home equity
lending, particularly HELOCS, and away from cash-out
refinancing — which replaces an original mortgage
with a new one while allowing borrowers to cash out
As a mortgage originator, a prudent strategy to prepare for the pivot is to build relationships with tech-savvy nonbank lenders that have experience in the
home equity lending market. The growing demand
for these products could mean new business opportunities for mortgage brokers who recognize the
potential scale of this shift.
The re-emergence of home equity lending has
captured the attention of highly respected experts in
the financial industry. Take the pulse of the industry
and discover that the parallel increases in home values and interest rates are the tailwinds driving home
equity lending demand, even as demand for cash-out
Strong home-price appreciation has handed Americans an equity windfall. This growth, which has accelerated in recent months, is helping to build wealth in
the form of home equity and also bring homeowners
with negative equity — also known as being underwater — back to positive equity positions.
The surge in total homeowner equity is being
driven, in part, by increasing home prices, which have
risen, on average, around 7 percent annually since
2012, according to S&P CoreLogic Case-Shiller data.
This growth produced a record $5.8 trillion in tappable
home equity for U.S. homeowners, Black Knight
Financial Services reports. This is $3 trillion more than
they had in 2012, at the end of the financial crisis, when
the housing market bottomed out.
In early 2018, some 80 percent of homeowners had
home equity they could tap, according to Black Knight.
Data from CoreLogic shows that home prices have
risen by between 6.2 percent and 7.1 percent on a year-over-year basis each month from January through July
of this year, with further price appreciation expected
to continue. These figures drive home the need for
mortgage originators to pay attention to home equity
lending and to begin building relationships with lenders that have experience in that market.
Rising interest rates
The performance of U.S. Treasury bonds correlates
directly with the interest rates on fixed-rate mortgages.
When Treasury yields rise, so do interest rates. This
outcome can influence homeowner decisions, and
many could choose to hold fast to their low-rate mortgages versus refinancing up to a higher rate.
Dan Fuss, veteran bond manager and vice chairman of Loomis Sayles & Co., predicts that the 10-year
Treasury yield will rise beyond 4 percent within two
years. Barring any major disruptions that rattle the
economy, he also expects that the U.S. is in for an
extended period of rising interest rates.
Mortgage Bankers Association data shows that some
80 percent of available equity is held by homeowners whose current mortgage interest rates are under
4. 5 percent, while 60 percent of tappable home equity
is held homeowners with rates south of 4 percent.
Those numbers are indicative of a growing market for
home equity lending.
An emerging market
With the prime rate hovering around 5 percent as
the year nears a close — and the Federal Reserve
expected to remain in a rate-raising mode for the
foreseeable future — we can expect homeowners to
remain reluctant to pursue cash-out refinancing. How
many people, after all, are willing to swap out a lower
rate on their existing mortgage for a higher one and
pay high closing costs as well?
The demand for access to mounting home equity is
there, however. The average 30-year fixed-rate mortgage interest rate broke the 4. 7 percent threshold as
of this past September, a mark not reached since April
2011, according to Freddie Mac. Still, TransUnion estimates that, despite a less rate-friendly environment,
some 1.6 million homeowners will seek second mortgages (HELOCs) in 2018, and an additional 10 million
from 2019 to 2022.
That’s a sizable pool of home equity loan business,
and more lenders and mortgage originators are beginning to recognize that they will need to strap home
equity loan products back on their tool belts to better
serve their customers. What will you do take your fair
share of that market? How will you advise and influence
prospects to secure their second-mortgage financing
“Who Dares Wins” is the motto of the elite British
Special Air Service. While no one is commanding you to
join the military, it’s highly recommended that you line
up your home equity loan resources now, so you can
get out in front of the move toward home equity lending, attract more customers and close more loans. You
must dare to win to get a slice of this market.
To improve your odds for success in the home equity
loan market, consider working with nonbank lenders
specializing in second-mortgage products. Driven by
speed and convenience, these lenders could become
valuable partners in unlocking the power of home
equity for your borrowers, helping to grow your business in the process. ■
For more articles on
home equity lending
View these articles and more at
“This Loan Can Open Doors,”
“Rate Hike Calls for Reassurance,”
“Fill Your Toolbox With the Right Loans,”