As of July 2015, the U.S. has seen 39 consecutive months of year-over-year home price appreciation. This has changed the equity landscape significantly, and has also opened up incredible opportunities in home equity lending for credit unions and their members.
Consider the numbers: at $7.6 trillion, total net equity is nearly 2.5 times more than it was at the end of 2011, and has expanded by $825 billion in just the first five months of 2015. The average American homeowner with a mortgage has about $19,000 more equity today than a year ago.
Looking at the amount of equity available to borrowers with mortgages – using an upper limit of 80% total combined loan-to-value (CLTV) including both first and second liens — Black Knight finds that 59% of total net equity — some $4.5 trillion — could be accessed by borrowers before hitting that debt limit. This amounts to 37 million borrowers with accessible equity in their homes.
Focusing specifically on the first lien mortgages held by credit unions, we find nearly 4 million members with accessible equity available to them. Scaled to the estimated 10% credit union market share, that equates to an aggregate of $450 billion in accessible equity.
As a result, it’s not surprising that in 2Q2015 the volume of cash-out refinances rose by almost 70% from the same period last year as borrowers capitalized on increased equity in their homes and still historically low rates. Even after pulling out an average of $67,000 in equity, borrowers’ resulting average LTVs were at 68% percent — the lowest level seen in more than 10 years.
However, low rates won’t be around forever. At this point, it’s no longer a question of whether the Fed will raise interest rates, but when, by how much and how quickly. When that happens, borrowers will be much less likely to refinance to access the available equity in their homes.
Homeowners will still want to use that equity, though, and home equity loans and lines of credit will become more and more attractive to borrowers who want to hold on to the historically low rates they’ve secured on their first mortgages. Right now, it’s still a historically small market, but it’s a fertile one.
Though accessible equity was only 17% below what it was entering 2007, HELOC originations in 1Q2015 — while up 40% year-over-year — were still 85% below 2007 levels. At the same time, borrowers who are taking out HELOCs today are of very high credit quality. 1Q2015 HELOC originations had the highest weighted average credit scores on record, and 60% of the country’s accessible equity belongs to borrowers with 760+ credit scores.
There are a multitude of options in the market for good credit quality borrowers looking to access available equity. Forward-looking credit unions need to do everything possible to keep their members’ business in-house — even when that member’s first mortgage may be with another institution.
Working with Black Knight Data & Analytics helps credit unions easily identify HELOC lending opportunities among their members. Information regarding current mortgages, interest rates, owner occupancy, and estimated LTV can identify members whose first mortgages may be with another institution, but who would be excellent candidates for a HELOC — or for that matter, perhaps a cash-out refinance — with the credit union.
With Black Knight Data & Analytics, credit unions can also easily identify prime HELOC candidates among members in its first mortgage portfolio, whose current interest rates make refinancing unattractive, but for whom HELOCs make much more sense. Access to the appropriate data on those members can reveal estimated CLTVs, estimated available accessible equity and — crucially — the existence of any subordinate loan that may be held by another institution. This data helps credit unions identify and/or eliminate specific members to target.
Black Knight collects industry-leading loan-level information and has the industry’s largest U.S. property records database with information on more than 99% of U.S. property records. By combining data from both, identifying potential HELOC customers among your membership transforms a guessing game into accurate science. For more information on Black Knight Financial Services Data & Analytics, please visit www.BlackKnightDNA.com.
Dori Daganhardt is vice president of product marketing and strategy for Black Knight Financial Services, Data & Analytics
About Black Knight Financial Services, Inc.
Black Knight Financial Services, Inc. (NYSE: BKFS), a Fidelity National Financial (NYSE:FNF) company, is the mortgage and finance industries’ leading provider of integrated technology, data and analytics solutions that facilitate and automate many of the business processes across the mortgage lifecycle.
Black Knight Financial Services is committed to being the premier business partner that lenders and servicers rely on to achieve their strategic goals, realize greater success and better serve their customers by delivering best-in-class technology, services and insight with a relentless commitment to excellence, innovation, integrity, and leadership.