Growth in the home equity market has been so phenomenal lately that keeping up the pace will be difficult, according to a recent study.
But lenders in the market, especially newcomers, are optimistic about the near future.
Home equity loan outstandings increased 12.5% in 1995, but that growth will slow slightly in 1996, according to David Olson Research, Columbia, Md.
The home equity market, which often includes loans made to homeowners with poor credit, used to be underserved, said Hugh Miller, president and chief operating officer of Delta Funding Corp., Woodbury, N.Y. "These people were getting rejected," he said. "Now they can get loans that allow them to consolidate their bills."
Delta is projecting 75% growth in originations for some of its product lines.
In the last two years, several companies that formerly would not consider originating nonconforming loans have stepped into the market, drawn by high profit margins.
"A lot of lenders are dipping their toe into the water to see if there are snakes there, like they always believed," said Scott Reading, president of Amresco Residential Credit, Ontario, Calif.
But, despite a gaggle of newcomers, the home equity market is still underserved and growth is imminent Mr. Reading said.
Amresco entered the home equity market this year and has already acquired $750 million in wholesale product. The company expects a yearend total of $2 billion, Mr. Reading said.
In fact, much of the industry's growth in 1996 will come from an influx of loans originated through wholesale lenders, David Olson reports.
The transition into wholesale lending is especially smooth for lenders with established retail operations.
First Finance, based in Bloomfield Hills, Mich., began purchasing loans from brokers and smaller companies this year.
"We've got a competitive advantage (in wholsale lending) because we already do retail," said Mark Stabile, vice president for lending.
The low overhead on wholesale operations plumps up profit margins, he said. This year the company will purchase about $50 million in wholesale product, and that figure should quadruple in 1997, Mr. Stabile said.
Publicly held home equity companies saw their stock prices grow 111% during the first 11 months of 1995, David Olson reported; the Dow industrial rose 24% in that period.