Third quarter data revealed that the most significant contributor to loan growth across all financial institutions
in the past year has been second mortgages or home equity products. Numerous
regions around the country experienced substantial increases in median home
prices. Existing homeowner’s equity mushroomed, creating opportunities
for borrowing, thus resulting in increased activity in the second mortgage and
home equity line of credit (HELOC) product lines. Housing construction increased
as consumers leveraged equity to expand living space or add-on that new garage.
Credit union loan growth was up 3.65% from the second quarter, led by a strong
surge in fixed and adjustable home equity products, which were up by 6.88%.
Leading the charge was home equity lines of credit, which mirrored national
trends reported by FDIC. Home equity lines outstanding reached $34.4 billion,
increasing 8.39% from last quarter, while the fixed rate home equities grew
4.89% to $25 billion. The trend should continue as year-to-date loan originations
for adjustable rate home equity lines were at $15.8 billion at month-end September
2004. Originations for home equity lines should shatter last year’s record
bookings of $16.7 billion. During the same period, originations for fixed home
equities were $10.8 billion.
The graph below depicts the increasing disparity between fixed home equity loans versus HELOC balances outstanding: