Home Equity Lending Revival in California
In California at least, credit unions have begun to see revived demand for home equity loans and lines of credit, according to credit union and real estate executives.
Where home prices are higher and have bounced back more quickly, these credit unions have begun to see increasing demand for the financial vehicles that allow home owners to tap into that recovery.
Demand for the products largely dried up during the downturn as homeowners saw thousands of dollars in equity vanish and many homeowners found themselves underwater in their mortgages.
“We started to see a trickle of interest about three months ago, but have seen the demand rise steadily,” reported Brian Pouch, assistant vice president for real estate lending at the 161,000-member, $2.1 billion Travis Credit Union.
Travis, headquartered in the Northern California community of Vacaville, has begun to see as much as 30% of its real estate closings in home equity loans, Pouch estimated, but he emphasized the volume remains small in the credit union's history with the product.
“It's nothing like it was [before the downturn],” Pouch said. In 2005, its heaviest year, the credit union booked roughly $82 million in home equity loans, Pouch reported. Travis booked more than $171 million in housing finance overall in 2013, he said, with most of those refinances but seeing more purchase money loans toward the end of the year as refinance demand dried up.
Well to the south, Jeff Harper, vice president of lending for Orange County's Credit Union, reported similar trends. The 86,000-member, $1 billion credit union in Santa Ana had seen demand for the loans fall off to almost nothing during the downturn and in its aftermath, but it has started to pick up again.
“We never withdrew the product so we never totally stopped making those loans or doing the HELOCs,” Harper explained. “But the numbers dropped off between 45 and 60 units per month in 2007 to about nine or so for most of 2013.”
Orange County's has also has seen its monthly demand for home equity loans or HELOCs rise to roughly 22 per month so far this year, Harper said.
And like Travis, Orange County has seen the demand pick up as people have grown more confident in the value of their homes and in their own economic prospects, Harper explained.
“We had gotten so focused on refinancing loans and capturing as much of that business as we could that when the demand for home equities and HELOCs started to pick up, we had to step back a little and regroup to meet it,” he said.
Nationwide, credit union mortgage consultants and other real estate executives report similar trends, but not uniformly so.
Tracy Ashfield, founder and CEO of Strategic Mortgage Consultants, reported that few of her mortgage clients have seen their home equity or HELOC demand pick up.
But Randall Bradley, an executive vice president with National Closing Solutions in Rocklin, Calif., a firm which provides services to about 12 credit unions, reported many of his firm's credit union clients are closing more home equity loans now.
“I think it's mostly a West Coast phenomenon now,” said Bradley.
But while the demand for the familiar, pre-recession, product may be picking up, Pouch and Harper report that members applying for the loans are generally doing so for different reasons than they were before.
“Before the downturn there was more demand for toys with the home equity loans,” Harper said, “because the interest rates on the money were relatively low. It wasn't unusual to hear about people getting the SUV or the new truck with the money.”
During the downturn, he said, people still took out the HELOCs if they could, but those lines of credit were seen almost like insurance against a rainy day – something it was good to have but which they might not use, Harper explained.
Now, members are using the money for home improvements, either to boost the value of the home before they sell it or because they have pent up demand for repairs or because members know they are going to be there for a while and want to have a nicer place, Harper said.
Travis was seeing something similar, according to Pouch. “Lots of home improvements and some big repair projects, roofs or major repairs or expansions,” Pouch said. “Things they have known they needed or wanted to do for some time but haven't been able to afford.”
Pouch also reported there have been very few, if any, members who have been taking home equity loans or starting HELOCs to pay for “toys.”
And while members are using their HELOC and home equity loans for different purposes than they did before, both executives reported that making the loans has also significantly changed.
Neither credit union, for example, offers pre-approved lines of credit based solely on credit scores any longer. And HELOC loans are now part of the housing finance division of Orange County's Credit Union whereas previously they had been part of the consumer lending division. In addition, fixed rate home equity loans have to comply with new mortgage regulations, which also has to be factored into the processing and pricing, Pouch said.
In general, both executives agreed both home equities and HELOCs are harder to get now than they were then, but they both agreed they needed to be.
“It's a different atmosphere and a different product now,” Harper said. “But it's one that's better for our members, too.”