Banks Want More Owners to Tap Into Equity

As home prices rise, banks are touting home-equity lines of credit (HELOCs), trying to get more home owners to take equity out of their homes.

J.P. Morgan Chase Co. started contacting customers in January, marketing the benefits of cash-out refinances for making home repairs, debt consolidation, and tuition payments. PNC Financial Services Group Inc. also increased its marketing on HELOCs.

Read more: 1 Million Borrowers Regained Equity Last Year

But TD Bank may have the most unusual approach. The bank has sponsored a tour bus that travels to hardware stores along cities in the East Coast that invites home owners to step in, grab an iPad, and fill out an application on the spot.

The bank “is placing a bet…home equity will play a bigger part of our business,” Mike Kinane, senior vice president of home-equity lending at TD Bank, told The Wall Street Journal.

A growing number of banks are trying to offset a recent decrease in mortgage originations and refinancings by trying to ramp up a more robust home-equity lines of credit business. They are hoping to hook home owners who are looking to renovate or need cash for other expenses.

Last year, lenders extended more than $156 billion in home-equity lines of credit – the largest amount since 2007, according to data from CoreLogic. The average line of credit extended to home owners last year reached a record-breaking $119,790, according to CoreLogic’s data, which dates back to 2002.

“Lenders are opening up their spigots,” says Sam Khater, deputy chief economist at CoreLogic.

Still, the volume of HELOCs is well-below what it was during the housing boom. At that time, lenders were extending more than $300 billion in credit lines a year – about half of what they currently are extending.

This time around banks also are requiring higher credit scores and in the majority of the cases, borrowers must have at least 20 percent of equity in their home after receiving the credit line. The average FICO score for borrowers who received a home-equity line of credit was 781 in the fourth quarter of 2015, according to Black Knight Financial Services data.

Source: “Banks Ramp Up Push for Home-Equity Lines,” The Wall Street Journal (March 27, 2016)