What's Happening?
Home equity lending is experiencing significant growth and is anticipated to exceed Non-Qualified Mortgage (Non-QM) originations in volume by 2027. Tom Davis, chief sales officer at Deephaven Mortgage, projects this shift, citing Nomura research. The
forecast estimates 2026 equity origination volume at approximately $150 billion, compared to $170 billion for Non-QM. By 2027, with a projected 20% growth in second liens, equity originations could reach $180 billion. This growth is already evident in lender pipelines, with companies like Griffin Funding reporting an increase in equity lending from 15% to 25% of their total volume within a year. The primary driver for this trend is homeowners' reluctance to refinance their first mortgages, which often carry much lower interest rates, while still needing to access their substantial home equity. Many homeowners are sitting on significant tappable equity, estimated at nearly $11 trillion, and are seeking ways to access liquidity without disturbing their existing low-rate first mortgages.
Why It's Important?
This projected shift signifies a notable change in the U.S. mortgage market, impacting lenders, brokers, and homeowners. For lenders and brokers, the rise in home equity lending presents a substantial opportunity, particularly for those already operating in the Non-QM space, as they can expand their offerings to include products like DSCR HELOCs. This allows them to serve real estate investors and other borrowers who may not fit traditional agency guidelines. Homeowners benefit by having more flexible options to access their home equity without incurring higher interest rates on their primary mortgages, which is crucial in a high-rate environment. The increased demand for home equity products also highlights a broader consumer trend: a desire for liquidity while preserving favorable existing loan terms. This could lead to more innovative and faster home equity products entering the market, as speed and execution are becoming key competitive advantages for lenders.
What's Next?
The trend of increasing home equity lending is expected to continue into 2027 and beyond, with industry experts like Bill Lyons, president and CEO of Griffin Funding, hearing even higher estimates for origination volumes. Lenders are likely to further refine and expedite their home equity product offerings, focusing on speed and a streamlined borrower experience to meet evolving consumer expectations. Originators are advised to treat home equity products as a primary cash-out financing option and actively market these solutions to their client bases. As homeowners continue to hold onto low first-mortgage rates, the demand for HELOCs and closed-end second mortgages will likely remain strong. This could also lead to increased competition among lenders in the home equity space, potentially driving down costs or improving terms for borrowers. Additionally, real estate investors are expected to continue comparing cash-out refinances against DSCR HELOCs to determine the most financially advantageous approach.
Beyond the Headlines
The surge in home equity lending reflects a deeper economic reality where homeowners are adapting to a higher interest rate environment. It underscores the value homeowners place on their existing low-rate mortgages, treating them as a significant asset to protect. This trend could also signal a shift in consumer behavior, where accessing equity through second liens becomes a more common and accepted financial strategy than full mortgage refinancing. Ethically, lenders will need to ensure that borrowers fully understand the implications of taking on additional debt, even if it's against their home equity. The speed and ease of obtaining these new home equity products also raise questions about responsible lending and borrowing, ensuring that convenience does not lead to over-leveraging. Long-term, this could reshape how consumers view and utilize their home equity, moving towards more dynamic and flexible financial management strategies for their largest asset.
