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Special Reports
Home Equity Lending
Home Equity Originators Operating 'Carefully'
Underwriters are looking closely at new applications.
By Brad Finkelstein
Home-equity loan providers are originating loans "carefully," said an
executive at one Connecticut-based firm.
While the market has softened a bit in its home market of Fairfield County, Steve
Habetz, president of Threshold Mortgage, Westport, Conn., added, "Nobody is yelling fire" either.
People had been accessing their equity, but in his firm's experience, it was not
being done to the maximum and as a result, borrowers did not tap out everything.
Underwriters are looking closely at new applications to make sure the borrowers
are not taking out every last cent. Mr. Habetz said they are also looking at stability of employment and whether
there is good reason (such as rehabilitation, repair, college tuition and the like) for the equity withdrawal.
Different lenders are looking at different risk profiles, he pointed out.
Another use for the home-equity loan in recent years has been for piggybacks,
a second mortgage designed to pay for all or part of the downpayment while helping the borrower avoid mortgage
insurance. Mr. Habetz noted there are lenders still out there doing this product.
Donovan Douvia, the president of Premier Lending Inc., a broker/banker based in
Bellevue, Wash., noted that his firm is experiencing a slowdown because of two factors. Borrowers are concerned
with home values and that the rates for first mortgages have started to decline. With the stabilization of rates,
the firm is seeing more first mortgage refinance business. Adjustable-rate mortgages resetting is also contributing
to the pickup in first-lien loans.
And for those customers that are looking for a home-equity product, he said they
prefer the closed-end fixed-rate loan rather than the open-end line of credit adjustable.
In terms of values, consumers are being cautious about getting too far ahead of
themselves in taking equity out of the property, especially if they are looking to sell the property in the near
future.
As for the other side of the equation, namely those interested in purchasing these
loans, Mr. Douvia commented that investors are not offering as aggressive products as they had one or two quarters
ago. And much of the reason has to do with performance. He mentioned specific product types as the 45- or 50-year
fixed-rate standalone second as one that has lost investor interest (as well as consumer demand for that matter).
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