Equity borrowing stages comeback as home prices rise
Lenders say value gains lift consumer confidence to tap collateralFebruary 28th, 2013
Home-equity lending is on the rebound in the Spokane market following several years of declines that coincided with the protracted slip in real estate values, lenders here say.
Last year marked the first sustained improvement in median home sales prices in the Spokane area in four years, fueling homeowner confidence in borrowing against their gains in home equity, they say.
"We're definitely seeing a renewed interest," says Wayne Allert, vice president and credit approval officer at Spokane-based Washington Trust Bank. "Borrowers feel they've seen the bottom of the housing market and are starting to see the value in their homes. If they also feel confident about their jobs, they're starting to borrow a bit."
The median price for homes sold in Spokane County in 2012 through the Spokane Association of Realtors' Multiple Listing Service was $160,000, an increase of 3.7 percent compared with 2011 sales, marking the first upward movement in the annual median sales price since 2007.
Demand is growing both for fixed-rate home-equity loans and variable-rate home-equity lines of credit, Allert says.
A home-equity line of credit enables the borrower to withdraw a certain amount against the equity on a home, either all at once or incrementally over a period of time. Interest on such loans typically can vary with up or down movements in the prime rate. By comparison, a home-equity loan provides the borrower a set amount of funds and a fixed payment schedule.
"There are comparable terms on the structure between the two," Allert says. "A lot of times, a line of credit will go into a loan at the end of the line-commitment term."
Allert says home-equity borrowers generally are using the funds for home improvement projects and short-term cash-flow needs.
Originations of home-equity lines of credit and home-equity loans at Liberty Lake-based Spokane Teachers Credit Union have increased by 30 percent in the last six to nine months, says Scott Adkins, STCU's vice president of lending.
Prior to that period, post-recession borrowers had accessed home equity primarily through refinancing for lower mortgage rates.
Now, people satisfied with their mortgage rate are tapping home equity through other products, Adkins says.
Nationwide, home-equity loan originations increased 19 percent in the fourth quarter of 2012 compared with the year-earlier period, and originations of home-equity lines of credit rose 13 percent, the Wall Street Journal reported recently.
San Francisco-based Wells Fargo Bank, one of the nation's largest home-equity lenders, has been seeing an increase in demand for home-equity products in the Spokane region and throughout Washington state, says Kelly Kockos, senior vice president. Kockos is a home-equity manager whose territory includes the Spokane area.
"Nationally, we're not seeing a dramatic increase in home-equity products," Kockos says. "Spokane, however, is seeing an increase in home prices and home values. It's one of the concentrated areas of equity."
Borrowers and lenders are more cautions than they were before the recession, she says.
In the boom years leading to the recession, homeowners borrowed against home equity for convenience and to pay for goods and services that were a bit beyond the reach of out-of-pocket finances, Kockos says.
Now, borrowers are much more focused on home improvement and debt consolidation, she says.
"Today, it's less for things they desire and more for things they need," she says of home-equity borrowing.
Kockos says Wells Fargo considers what borrowers intend to fund using home equity as collateral before extending credit.
"Absolutely borrowers have to say what they are using it for," she says. "Lenders will focus on what the use is going to be and the ability to repay."
STCU, though, generally doesn't place restrictions on what its members can do with their home equity, Adkins says.
"Our loan policy states it can be used for any legal purpose," he says.
In addition to home improvements and debt consolidation, common uses for home-equity funds include college expenses and starting a business, Adkins says.
Most borrowers are eligible to deduct interest on home equity loans from income taxes, which some see as an advantage for financing a large purchase, such as a car.
"A surprising number of people go that route to write interest off their taxes," Adkins says.
Another advantage of home-equity products is that they typically don't have the fees and closing costs associated with conventional mortgages and refinancing, he says.
Also, homeowners can borrow more against the value of the home through home-equity products than they can through a conventional mortgage, Adkins says.
"Most lenders will go to 90 or 95 percent of the value of the home for home-equity loans," he says.
Recent rates for STCU's fixed-rate loans range between 4 and 5.5 percent depending on credit rating and loan to value.
Home-equity lines of credit are a little higher. Recent rates start at 5.5 percent for the most credit-worthy borrowers.
Adkins says STCU plans to introduce a new home-equity product that will enable members to lock in portions of their loans at a fixed rate.
"It will incorporate a revolving line of credit with the installment part of it," he says.
Wells Fargo also is stepping up home-equity marketing in regions, such as Spokane, where home equity is on rise, Kockos says.
"One of the innovative things Wells Fargo is doing is a fixed-rate advance loan," she says. "It's like a loan within a line. We'll give you a line of credit, but if you're going to take out a lump sum, we'll fix that within a loan."
Kockos adds that demand for home-equity products is highly sensitive to price.
"Some lenders are introducing pricing specials," Kockos says. "That seems to stimulate demand."