Tapping home equity has become all the rage

The uptick in equity loans is part of a broader trend marked by greater access to credit. According to TransUnion, the first half of 2022 concluded with a normalization in serious delinquency rates to pre-pandemic levels for most credit products as lenders continued to expand access to credit cards and personal loans. Highlighted in the credit ratings agency’s newly released Q2 Quarterly Credit Industry Insights report, the number of consumers with credit cards and personal loans has now reached record highs – driven by an increase in loans to non-prime consumers.

Read more: Seniors balk at using home equity loans

In the report, TransUnion’s vice president of US research and consulting Michele Raneri posits the trend as a positive, and welcome, development: “Consumers are facing several challenges that are impacting their finances on a day-to-day basis, namely high inflation and rising interest rates,” she wrote. “These challenges, though, are happening against a backdrop where employment opportunities are still plentiful and jobless levels remain low. We see lenders offering more access to credit to non-prime consumers, some of whom are new to credit. This is a welcome development as more consumers have gained access to credit during a time when high inflation has placed a greater burden on their wallets.”

Better yet, delinquencies have not loomed large in this new environment, she noted: “While delinquencies generally rise after a period when more non-prime borrowers secure loans, the rates of delinquency remain mostly at or below pre-pandemic levels, particularly for cards and personal loans.”

Austin spoke to equity’s appeal: “I think what makes these products more appealing is that over time – over the last dozen or so years – the underwriting, and underwriting in general on first mortgages, has been better,” he said. “Because of the improved underwriting requirements, it’s less risk for lenders to get back into the home equity space. The biggest driving factors were mortgage rates increasing and property values increasing so fast over the last few years.”