If you’ve been following my articles over the last two years, you will know I have agreed with most experts that interest rates would rise at some point in 2020 or 2021. Well, it may not be 2020 or 2021, but to quote a famous line from the 1982 movie Poltergeist, “They’re here.”
2021, much like 2020, was a robust year for mortgage lending with a continued strong pipeline of new home purchases and refinances. The general consensus seems to be this trend will continue into 2022, with a decline later in the year if the expected rate increases actually occur.
With most of 2021 behind us, lenders have primarily continued to have near-record volumes in home purchases and refinances. Though some experts had predicted 2021 to be the year of rising rates and declines in these markets, that has not come to fruition. Owing perhaps to unprecedented government intervention, or the continued volatility of markets in general, interest rates have remained low, and demand for new home loans and refinances has remained strong.
As the economy recovers, things have taken an interesting turn in the home lending sphere. Most lenders are flush with deposits, having seen a massive increase in 2020 and early 2021. This trend is expected to continue throughout 2021. At the same time, many larger banks and lenders paused their HELOC applications while the economy was on shaky ground.
There are many adjectives I have heard to describe 2020. Some of these may be considered R-rated so I am reluctant to repeat them here! However, some of the G-rated adjectives are wild, busy, unusual, odd, strange, and frustrating. One word I have not heard to describe 2020 was uneventful.
Home equity lending has been a staple of community banks and credit unions for many years, having been a valuable source of funds for life events for families across generations. These loans are offered in varying loan types, whether open-end HELOCs or fixed-term loans, with different guidelines around credit scores, debt-to-income ratios, and combined loan-to-values (CLTVs). The exact loan types and guidelines offered are determined by the lender’s risk tolerance for the product. One of the most challenging aspects of structuring a home equity program is identifying your maximum combined loan-to-value limit. Utilizing a credit default insurance program can make that decision easier.
