Mother lode of tappable equity remains, even amid economic challenges

“When I think about home equity, I tend to think of this as a two-part story,” Joe Mellman, senior vice president and mortgage business leader at TransUnion, said during a telephone interview with Mortgage Professional America. “The first part is, yes, originations are down because interest rates are up and refi – in particular rate and term refinancing – is down and we all knew that was going to happen. And we’re starting to see that, and it’s a normal part of the cycle.

Read more: Does refinancing a mortgage impact your credit score?

“But what the more optimistic message to lenders is that there are ways to mitigate that and find business outside of rate term refinancing, and home equity is one of those areas that has really shined through, particularly in the past few quarters. At the top level, that $20 trillion of tappable equity that consumers are sitting on is an astronomical sum. And I want to emphasize that is not even total home equity but tappable home equity. And we looked at that looking at every single consumer from the bottom up and how much home equity they would have after they met up to a max 80% CLTV [combined loan-to-value].”

Even from that permutation, the findings are stunning: “Consumers are sitting on a massive amount of home equity, that’s the first point,” Mellman said. “The second point is they’re showing a clear interest in tapping that home equity. If you look at the amount of home equity – the amount of home equity loans consumers have tapped since pre-pandemic to now – it’s risen 80%.”

Bottom line: Despite current challenges, consumers remain well-positioned from a consumer credit perspective, according to the report. Even amid the peak of the COVID-19 pandemic, consumer performance remained relatively strong as stimulus funds, forbearance and accommodation programs provided consumers with a safety net during a period of great uncertainly, the report found. Now that the pandemic-related financial programs have ceased, new challenges – such as inflation and rising interest rates – are starting to have an impact on consumer spending power.