Home equity lenders are stepping out of the shadows and into the light of dazzling profits and originations.
While the home-loan refinancing boom raged over the past couple of years, home equity lending experienced lackluster profits and growth. But with interest rates climbing ever higher, home equity lenders are enjoying double-digit growth.
"Home equity lending? That's where the real hot market is right now," said Thomas Sidley, chief operating officer of U.S. Bancorp Mortgage.
Stuart Feldstein of SMR Research, Budd Lake, N.J., said home equity lending and first mortgages become profitable inversely. As first mortgage lending gets hot, home equity lending wanes.
That's because refinances often include a bit of extra cash for the borrower, in much the same way a home equity loan would.
But now that the refinance boom has fizzled, Mr. Feldstein expects home equity lending to SOar.
"We think home equity loans are about to enter another boom period comparable to the 1980s," he said.
Ford Consumer Credit, Dallas, and First Union Home Equity Corp. Charlotte, N.C., are among the nonconforming lenders who are doing well, according to SMR and David A. Olson, a Columbia, Md., analyst and publisher.
United Companies Financial Corp. has had record growth in its home equity lending in recent months.
Second mortgage production at the Baton Rouge lender that specializes in home equity lending is up 56% since 1993. United originated $231.3 million of home equity loans during the third quarter. That's up from $148.5 million over the same period last year.
Most of United Companies' originations are coming in 15-year fixed-rate nonconforming loans.
Equicredit Corp. is also showing strong growth.
"Business has been brisk," said John T. Hayt, president and chief executive officer.
Mr. Hayt said the Jacksonville, Fla., lender has rebounded from a second quarter of slow production. He attributed the slowdown to Equicredit's uncompetitive pricing.
"As rates begin to increase, people tend to rush to the window" and borrow, Mr. Hayt said.
"Hell, they don't understand Treasuries or anything like that. But they understand when the prime rate goes up it means they will pay more to borrow money."