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Special Reports
Home Equity Lending
Chase Exec Says Borrowers Shifting to Fixed-Rate HE
By Brad Finkelstein
Traditionally home-equity lending has been countercyclical to first mortgage
lending, said an executive with one of the nation's leading home-equity wholesalers.
When rates rise, people tend to leave their first mortgages alone, said Kimberly
Salvo, senior vice president and national sales manager for Chase Home Finance B2B Home Equity.
But what is happening because of the rate increases is that consumers are starting
to migrate from the open-end home-equity line of credit product to the closed-end home-equity loan product.
In 2004 and 2005, approximately 95% of its business was in HELOCs, Ms. Salvo said.
Right now, that has declined to between 65% and 75% taking an open-end loan. Such shifts in the marketplace have
forced Chase to be innovative in its product menu. For example, the company has a product that allows the borrower
to lock in a portion of a HELOC for up to five times during the life span of the loan.
Home-equity lending, Ms. Salvo said, has become a core product for mortgage brokers
to have. While there used to be the need to educate brokers about the product in the past, the view many have,
she said, is that by having home equity on their menu, it is a way to add value for their customers.
The piggyback loan, whether as a tool for mortgage insurance avoidance or as a
way for a borrower to have more funds to tap for future need, helped increase the popularity of the home-equity
product.
So not only have the brokers become educated about the home-equity product, Ms.
Salvo said, but consumers have as well. Consumers have become more sophisticated and savvy about using their homes
as a financial planning vehicle.
While many consumer groups are up in arms over the use of a secured loan such
as a home-equity loan instead of unsecured loans such as a credit card, the rate advantages plus the tax deductibility
(but see an accountant or tax advisor first) make it better to use the home-equity product, said Walter Galler,
vice president of B2B Home Equity Marketing for Chase. He noted that when the prime rate goes up, which impacts
home-equity lending, the rate for other products such as credit cards and auto loans rises as well.
"Any financial vehicle can be used irresponsibly," he said.
There is room for more innovations in home-equity lending, Ms. Salvo said, but
any new products need to be logical innovations. Among the recent innovations has been giving consumers ability
to access their HELOC through a debit card. "Responsible lenders will put out responsible programs,"
she said.
Chase sees the home-equity area as a robust sector to do business in. Growth in
this area, Ms. Salvo said, will be influenced by increases (or lack there of) in housing appreciation.
The company has an optimistic view of the sector and it is one it will continue
to compete in vigorously, she said.
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