TransUnion study determines need to understand how consumers may use such loans
CHICAGO, Oct. 17, 2018 — A surge in home equity borrowing may soon be on the horizon. A new TransUnion (NYSE: TRU) study found that several dynamics are creating a market ripe for home equity origination growth, but a better understanding of how consumers use these loans may impact their interest in securing one. The findings from the study were released today at the Mortgage Bankers Association Annual Convention & Expo.
A major reason for expected growth in home equity borrowing is the fact that household home equity, currently nearing $15 trillion, has surpassed its prior “housing bubble” peak in Q1 2006 by over $1 trillion. Home equity is the difference between a home’s fair market value and the outstanding balance of all liens on the property.
Home equity levels have been rising at a rapid rate each year since hovering around $6 trillion between 2009 and 2011. While the S&P/Case-Shiller House Price Index (HPI) increased by 42% between Q1 2011 and Q1 2018, home equity levels outpaced home prices in that same timeframe.
“There are ample signs that the home equity lending market is poised for growth. Home prices have surpassed 2005 boom levels and household home equity has grown even faster,” said Joe Mellman, senior vice president and mortgage business leader at TransUnion. “Increasing consumer debt makes debt consolidation an appealing option and home equity can be the most economically attractive path to do just that. The recession caused a home equity lending pull-back, which all but eliminated consumer marketing and education. We think there’s an opportunity to re-introduce that education to consumers and help them evaluate how and when tapping home equity could make sense.”
These new market dynamics may begin to accelerate the home equity loan market. HELOCs represented the greatest number of home equity originations in 2017 at 1.2 million, showing a 2.3% year-over-year growth from 2016. This presents a market opportunity for lenders as HELOCs have extremely low vintage default rates and an estimated 70 million homeowners likely qualify for a home equity product.
“With rising interest rates and increases in home prices outpacing wage growth, homeowners are more likely to stay in their current homes, rather than ‘move up.’ This leads to a higher likelihood of improving their existing home and home equity can be great tool for that,” added Mellman.
Home Equity Loan Usage and its Impact on Such Offers
In addition to identifying the trend that consumers are utilizing more home equity products, the TransUnion study determined that usage of home equity products can be broken down into five categories — and further estimated how originations distributed across these categories.
Furthermore, TransUnion predicted the usage consumers were most likely motivated by. This, in turn, can allow lenders to provide consumers with customized offers that speak to their specific needs.
Top Five Uses of Home Equity Products
|Home Equity Product Use||Description||Percent Using* (segments are not mutually exclusive)|
|Major Expense||Take cash out, often for a large expense like home remodeling||91%|
|Debt Consolidation||Consolidate balances from other credit products||41%|
|Refinance||Refinance to get a better rate or term||23%|
|Piggyback||Concurrent with a mortgage origination, often used for down payment||4%|
|Undrawn||Not used immediately (e.g. “rainy day fund”).||2%|
*Note: This percentage is based on 2.4 million home equity loans originated between July 2016 and June 2017.
“In today’s consumer-centric marketplace, consumers expect personalized offers addressing their specific needs. Studies show consumers are much less likely to find value in generic messaging and education. Utilizing a personalized marketing approach addressing specific usages consumers have in mind can help ensure a strong relationship between consumer and lender,” concluded Mellman.
For more detailed information about TransUnion’s home equity lending study, please visit https://www.transunion.com/2018helocstudy.
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Contact Dave Blumberg TransUnion
E-mail [email protected]