First Mortgages and HELOCs See Substantial Growth

First mortgages and home equity lines of credit (HELOCs) both increased substantially in the first quarter while the number of subprime mortgage loans approved remained consistent for the third straight year, according to a recent report from Equifax.

The number of first mortgages rose by 10.3 percent over-the-year up to 1.86 million during the first quarter, according to Equifax’s May 2016 National Consumer Credit Trends Report. Home equity lines of credit during the quarter totaled 314,000, which represented an increase of 10.2 percent since the same quarter a year earlier.

This data means good news for the housing market as potential buyers still look to take advantage of low interest rates. The average 30-year FRM has been below 4 percent for a year now and is still at just 3.48 percent (only 17 basis points above its all-time low) even after increasing by 6 basis points in the last two weeks.

“You haven't missed the boat yet. There is still time to buy a house at a very low interest rate,” Equifax Chief Economist Amy Crews Cutts said. “When mortgage originations go up, part of the reason is they go up because it's seasonal—homebuying happens in the second quarter. The second part of that is, refinance activity is not dead yet. We have this steadiness of refinance activity with the push of home purchase activity driving up mortgage originations at a pretty nice pace. Last year, they went up 66 percent, but that had to do with a refinance boom early in the year. Then it kind of died out in the latter half of the year. Now it seems to be reborn again.”

“We have this steadiness of refinance activity with the push of home purchase activity driving up mortgage originations at a pretty nice pace.”

Amy Crews Cutts, Chief Economist, Equifax

In addition to the increases in first mortgages and HELOCs during Q1, home equity installment loans spiked by 23.5 percent in the first quarter up to 182,400—an eight-year high for an opening quarter, according to Equifax. The share of new mortgage accounts issued by lenders to subprime borrowers (those with Equifax Risk Scores of 620 or lower) increases on a consistent basis alongside prime lending in Q1 (95 percent accounted for prime loans and 5 percent accounted for subprime).

“The first quarter of 2016 was a strong one for mortgage lending and underwriting practices appear to have maintained their rigor over the last three years,” Crews Cutts said. “We anticipate that the second quarter of 2016 will maintain this trend. And later this year, the much-anticipated addition of trended credit data to the mortgage underwriting process will help to strengthen the marketplace further by helping to statistically separate lower risk borrowers from those presenting higher risk.”