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MortgagePoint ยป Your Trusted Source for Mortgage Banking and Servicing News 46 February 2024 F E A T U R E S T O R Y I n the ever-evolving landscape of the U.S. housing market, American homeowners may choose to use a home equity line of credit, or HELOC, over refinancing their current mortgages or purchasing new homes. Equifax data showed that through June 2023, around 617,000 HELOCs originat- ed, equaling $75.4 billion year-to-date in total credit limit. A HELOC is a secured loan borrowed against the available equity in a home, with the house serving as collateral for the line of credit. Homeowners have long used HELOCs as flexible sources of funds to address a range of needs, such as home improvements, debt consolidation, educational expenses, investments, or major purchases. HELOCs typically have lower interest than alternatives, such as credit cards, which make for an enticing alternative to some of the high interest rates that have been seen in recent years. HELOC usage spiked in 2021 and 2022, when the market saw a 39% surge in orig- inations of the loans, and its continued use as an option shows how homeowners are approaching their financial needs. Several factors are contributing to the desire for HELOCs. First, homeowners benefited from historically low mortgage rates for most of 2020 and 2021, when interest rate averages hovered around 3%. It's not surprising that homeown- ers would be hesitant to trade in their advantageous mortgage loan terms to purchase a new home at today's interest rates, which Freddie Mac's Primary Mort- gage Market Survey (PMMS) reported as being at a 23-year high of over 7% in mid-September. For example, a borrower who purchased a $250,000 home in 2021 at a 3.75% interest rate would pay roughly $1,200 monthly. Fast forward to 2023, and the same house, financed at a 7% interest rate, would require a monthly payment of approximately $1,700. In fact, only 18% of homeowners said it was a good time to buy a house, and only 18% expect mortgage rates to go down over the next 12 months. Second, the unprecedented increase in home prices over the last few years has resulted in many homeowners gaining unexpected equity in their properties. Home prices soared in 2021, hitting the biggest increase in 34 years, with regions across the United States seeing prices even higher than that of 2020, when many Americans took advantage of low mortgage interest rates. CNN also reported that in the South and South- east, home prices saw the biggest spikes with averages exceeding 25%. This surge may be attributed to various factors during that same time period, including increased demand for homes, low mort- gage interest rates, and a limited housing supply. While some were swept up by the real estate bidding wars, those who stayed in their homes saw a boost in their home values, allowing many homeown- ers to see substantial increases in their property's equity. Today, the U.S. median home price continues to rise, and in August 2023, areas of the country such as Massachu- setts were reporting new record highs. Paired with the low housing supply and current record-high mortgage interest rates, potential sellers are choosing to stay put in their current homes. With a ASSESSING HOME EQUITY: HOW LENDERS CAN NAVIGATE HELOC APPROVALS WITH DATA . B y J O E L R I C K M A N J O E L R I C K M A N is the SVP of Verification Services at Equifax, where he serves as General Manager for a $1 billion line of business. Rickman's leadership extends beyond routine management; he plays an instrumental role in shaping the future of The Work Number, an industry-leading income and employment solution for Verifiers. Rickman is responsible for The Work Number's relationship and growth across all lines of banking and lending: mortgage, auto, consumer finance, fintech, card, and student loans. Before joining Equifax, Rickman served as VP of Sales and Marketing for Katabat, directing the company's sales and marketing efforts. He has over 20 years of experience successfully leading teams and meeting revenue metrics. Rickman received his bachelor's degree in engineering from the Missouri University of Science and Technology.