Home equity loans are back on the rise

Lenders originated more than $100B in home equity lines of credit (HELOCs) in the first five months of 2022. This represents a 50% increase over the same period in 2021.

Why should we care?
Along with this boom in HELOCs has come a surge of nonbank lenders entering the space. Rocket Mortgage, for example, recently announced that it would launch a new home equity product. According to Karan Kaul, Principal Research Associate at the Urban Institute's Housing Finance Policy Group, greater HELOC-related competition between banks and nonbanks could lead to less strict underwriting standards. A report by the Urban Institute says around 45% of HELOC borrowers have credit scores higher than 780. Lending to applicants with scores lower than 780 may help more people build equity and wealth, but it also risks contributing to a lending crisis if a recession comes. HELOC demand is certain to rise at the expense of refis as rates increase—how that affects wealth distribution and the financial health of nonbanks is still uncertain.