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February 3rd, 2011

Is home equity lending making a comeback?

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Real estateFor certain lenders in certain parts of the country the answer is yes, reports AnnaMaria Andriotis of SmartMoney.com. That certainly sounds somewhat surprising considering homeowners across the country have seen their home’s equity stripped by falling home prices. Also, with many lenders still employing strict lending standards on first mortgages, it’s almost odd to hear that others are moving back into lending second mortgages.

Yet as I mentioned earlier, the number of lenders who are increasing their home equity lending isn’t that substantial. They tend to be regional banks that deal in areas of the country much less affected by the downturn:

After more than three years, some lenders are cautiously re-entering the second mortgage market. The effect hasn’t registered in the national statistics yet, but regional banks are reporting significant increases. In the Midwest, Associated Bank issued nearly three times more home equity loans in the second half of 2010 compared to the same period the year before. SunTrust Bank, which operates mostly in the south and Mid-Atlantic, has issued 25% more home equity lines of credit in the past six months compared to the first half of 2010. And during the past year at Citizens Bank, which has branches mostly in the northeast, HELOC originations were up 35%. Unlike the largest lenders, these banks have been less affected by the subprime mortgage meltdown and they lend in limited areas, often where homes have lost less value, says Stu Feldstein, president at SMR Research, which tracks home loan data.

Even though these banks may be lending in healthier portions of the country, it doesn’t mean lenders have relaxed their standards – lofty credit standards still apply:

This generosity, of course, is restricted only to the best borrowers: homeowners with at least a 720 FICO score, at least 20% equity in the home, and income verification, like pay stubs, for the past two years. That’s a stark change from pre-2008, when credit score thresholds were lower, income wasn’t always checked, and borrowers received loans for up to 100% of a home’s value — or more.

Much like the credit score requirements, the interest rates on these loans are up there as well:

This generosity, of course, is restricted only to the best borrowers: homeowners with at least a 720 FICO score, at least 20% equity in the home, and income verification, like pay stubs, for the past two years. That’s a stark change from pre-2008, when credit score thresholds were lower, income wasn’t always checked, and borrowers received loans for up to 100% of a home’s value — or more.

For more information, be sure to check out the home equity portion of our library — it’s filled with articles that will answer nearly all of your home equity questions.

Have a question you’d like to ask us directly? Feel free to leave us a comment below or fill out our “Ask the Expert” form on the right side of our homepage.

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2 Responses to “Is home equity lending making a comeback?”

  1. Tweets that mention Is home equity lending making a comeback? | HSH Financial News Blog -- Topsy.com Says: February 3rd, 2011 at 8:24 pm

    [...] This post was mentioned on Twitter by Mortgage News, Mario. Mario said: Is home equity lending making a comeback? | HSH Financial News Blog: This generosity, of course, is restricted o… http://bit.ly/ePbxCM [...]

  2. Capital Resource Says: August 16th, 2011 at 5:29 pm

    We may have to wait for private investors to re-enter the market to see more home equity loans.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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