Homeowners Tapping Equity

According to CoreLogic nearly 11 million homeowners are still underwater on their mortgages.  Despite this fact several major banking mortgage lenders are reporting that borrowers are actually tapping into the rising equity in their homes if they have it.

Over the last full decade of the housing boom American homeowners withdrew over $1 trillion in available home equity, and did so through cash-out refinancing, home equity loans and home equity lines of credit.  Many borrowers used home equity lines of credit as if their home’s equity were nothing more than a personal ATM machine.

Much of the nations economic growth between the early 1990s and 2006 was driven by homeowners tapping into their equity to buy new cars, home remodels and upgrades, televisions, all the latest computer and technology goods, and expensive vacations…then the party stopped.

Banking industry spokespersons noted that rising home prices has created a growing pool of equity available to homeowners that bought at the bottom of the market, or that held onto mortgages that never went upside down.  In addition, increased consumer confidence, meaning borrowers now feel better about their ability to repay these loans, has also helped more borrowers feel comfortable about tapping into that equity.

According to Equifax, these factors helped fuel a 19 percent surge in originations for home equity lines of credit at the end of 2012.  Banking giant JPMorgan Chase has seen a 31 percent increase in HELOC’s year-over-year from 2011 to 2012.

Further data from CoreLogic shows that home prices were up 8 percent year-over-year in December contributing to a “regaining” of home equity at a fast pace.   Their data reveals that 1.4 million borrowers rose above water on their mortgages through the end of September, with this number likely rising further as price appreciation accelerated through the end of last year.

Equifax states that the average home equity line of credit in October of 2012 was just below $90,000 compared to October 2006, when these lines averaged just over $100,000.