As home values rise, banks turn to home equity lending

  • Article by: DEON ROBERTS , Charlotte Observer
  • Updated: February 1, 2014 - 2:00 PM

Banks are returning to a business that lost appeal during the housing downturn: home equity lending.

Consumers are hearing the pitches in direct mail and in their bank branches. Lenders say the competition to capture home equity business is heating up.

Banks see home equity as a growing market as home prices rise. Some borrowers are finding they have equity for the first time in years.

“Not a lot of people had equity in their homes,” said Kelly Kockos, Wells Fargo’s home equity head. “We have stepped up our outreach when the market started to improve.”

In home equity lending, homeowners may borrow a fixed amount of money based on how much equity they have in their property. Borrowers may choose a home equity loan or a home equity line of credit.

Consumer advocates caution borrowers that failure to repay could result in the loss of their home, which is used as collateral.

The push comes as banks feel pressure from investors to increase their revenue, which suffered from a decline in the mortgage refinance business and other factors. Last year’s rise in interest rates dried up demand from borrowers to refinance their mortgages. That cost banks millions of dollars in mortgage income.

While banks are hungry to increase their home equity business, they are also cautioning that interested borrowers are facing more stringent requirements from lenders.

“We’ve ended up with a new world where home equity underwriting is significantly tougher than it was pre-crisis,” said Guy Cecala, CEO of Inside Mortgage Finance, a mortgage industry publication.

Nationally, the median price for existing homes rose in 2013 by 11.5 percent, to $197,100, from $176,800 in 2012, according to the National Association of Realtors.

A recent report by real estate website Zillow predicts that U.S. home prices will rise by 4.3 percent on average this year.

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