By SAM GARCIA
Even though challenges remain for junior lien lending, issuance and servicing, some areas of the sector are very promising, according to a new study. One of those areas is capital markets, with an array of transactions closed or in the works.
HELN produced its second quarterly study of the junior-lien market, Second Mortgage Market Insights Q3 2023. The 44-page report chronicles activity since the second-quarter report that was released in May.
In the originations section, the report showed how the volume of home-equity lines of credit closed has diminished on a year-over-year basis, while closed-end home-equity loan production has risen. Banks originated 61% of HELOCs, credit unions generated 37%, and fintechs were responsible for 1%. Home remodeling was the top purpose for HELOC lending.
Industry-wide second-mortgage production might have been better if not for the steep ascent in interest rates.
Two home-equity wholesale programs were launched, one by Figure Technologies Inc. and another by The Loan Store Inc.
But some of the biggest activity took place in the capital markets, where 11 home-equity securitizations have been tracked so far during 2023. In addition to wholesale lender NFTYDoor being acquired by Homebridge Financial Services Inc., Spring EQ disclosed an agreement to be acquired by Cerberus Capital Management. ICE’s acquisition of Black Knight resulted in the spinoff of Black Knight Origination Technologies, which included the Empower loan origination system that handles both first and second mortgages. The new entity operates as Dark Matter Technologies.
Flueid Software Corp. closed on a $10 million Series B1 offering, while House Numbers raised $3.75 million in pre-seed funding.
As of the second quarter, there were $340 billion in outstanding U.S. HELOCs, up $20 billion from a year earlier. Banks held 76% of the outstanding, while credit union share was 24%, and fintech share was 1%. PNC Bank, N.A.’s, home-equity assets as of the second quarter stood at $26.200 billion — more than any other institution. U.S. Bancorp boosted its home-equity portfolio by $1.826 billion over the past year, more than any other bank. Junior liens accounted for 5.2% of credit union’s total assets.
Yields on home-equity issuance were 10.69% in the second quarter, up 50 basis points from the preceding three-month period. At banks, the average was just 6.78%, though that was a whopping 289 BPS higher than a year earlier. The spread between first and second mortgages has nearly doubled over the past year to 253 BPS.
Although lower loan amounts on second mortgages drive the utilization of technology alternatives, ratings agencies don’t consider some of the blockchain income calculations and automated valuation models to be as good as their analog counterparts. Meanwhile, credit scores have been falling, though combined loan-to-value ratios have been improving. Still, banks have been tightening their standards on HELOC lending.
Despite concern with AVMs, the valuation method is used on 41% of home-equity transactions during 2022. Desktop valuations were utilized for nearly a third of commitments, while more than a quarter had full appraisals.
In the realm of search engine optimization, Rocket Mortgage rules. Other key home-equity SEO performers include US Bank, Bank of America and Citizens Bank.
While HELOC volume is expected to fall 2% this year, HEL lending is expected to jump by nearly a fifth. Ratings agency and capital markets executives are optimistic about this year’s originations and MBS volume. States like Wisconsin and Michigan are seeing the biggest growth in equity-rich share. Home-improvement is a big part of the home-equity outlook.