Home equity loans make a subtle returnby Tim Manni
If lenders are still reluctant to lend first-mortgage money, it’s no surprise that lenders have been anything but willing to lend money for second mortgages since home prices tanked dramatically a few years back.
Since the downturn, home equity lending disappeared along with homeowner equity nationwide. However, now that home prices have begun to rebound and equity is starting to return, it’s reasonable to think that home equity lending will return with it.
One sign of home equity lending’s return came with the announcement this week that Discover Financial Services will begin offering home equity loans in the second half of 2013.
Filling a hole
It wasn’t all that long ago that major lenders announced they were getting out of the reverse mortgage business, shrinking the already small pool of available home equity lenders.
Recognizing there was a hole to fill in the industry, and eager to compete with the fast-growing Quicken Loans, Discover decided to expand their mortgage platform into home equity lending.
“We’re going to build on our mortgage platform with the launch of a home equity product,” Roger Hochschild, Discover president, said on Tuesday.
“Approximately 80 percent of Discover customers are homeowners, and a sizable number of them could benefit from a home equity product,” said Carlos Minetti, consumer banking president.
Home equity loan rates at record lows
If you’re lucky enough to have some home equity and you can find a lender who is willing to lend, interest rates for these products are at record lows, says Keith Gumbinger, vice president of HSH.com. Record-low home equity rates suggest two things, he says:
- The low rates engineered by the Fed continue to bleed their way into all aspects of lending markets to a varying degree
- It’s an indication that lenders are trying to attract some additional business which presents a far greater profit opportunity
“Still, there are considerable potential risks of loss, so lenders remain wary and the equity lending market is by no way fully recovered at this point,” says Gumbinger. “It’s hard to make a blanket statement on when home equity lending will fully return. That said, I would expect that less-restrictive terms and conditions, and a wider availability for equity loans and lines of credit, will continue to emerge the longer property prices show signs of firming.”