Any lender looking at the home equity market for the first time can't help but be enthusiastic. Americans have some $4.6 billion of equity in their homes just waiting to be tapped, according to Ford Consumer Finance. That's out of more than $8 trillion in total value.
Furthermore, Household Finance estimates that only about 15% of the nation's 64 million homeowning households have home equity loans.
Home equity loans have been harder to market than other types of credit, partly because of a wide variety of credit-quality and procedural issues. But soon, the marketing effort should get easier in one significant respect: Lenders will be able to offer pre-appoved second mortgages more easily.
Pre-appovals have been a standard technique for credit card marketers.
Under the law, offers of pre-appoved credit must be firm-that is, all respondents must be granted credit. So the pitches generally offered a minimum loan, with larger amounts subject to approval.
For home equity lenders, such offers were much harder to make. But starting Oct. 1, pre-appoved offers can be made subject to verification of collateral and other application information at the time of response. And an offer can be withdrawn if the respondent no longer meets the prescreening criteria.
This should be the best of times in the mortgage business. On the economic side, housing demand continues to be strong, home prices are rising at a moderate rate, interest rates are fairly stable, and the pivotal California market is improving.
On the business side, refinancings are strong enough to bolster volume but not so frantic as to force troublesome writedowns of servicing value; and the industry appears to be restrained in underwriting.
Even the expected small decline in this year's total originations isn't terribly alarming. A miniboom in refinancings last spring, when the rate on 30-year fixed loans fell well below 8%, may account for most of the difference.
But purchase volume has remained remarkably steady since the second half of last year, at roughly $45 billion to $50 billion a month.
Projections by the Mortgage Bankers Association show that pace continuing for the rest of this year, as mortgage rates rise by about 10 basis points.
Expect the biggest players to continue to report solid profits, with some help from new ventures, such as subprime lending. Overcapacity, with its resulting low profit margins, will continue to take its toll on the others.
First, Countrywide Credit Industries of Pasadena, Calif., gave its name to a golf tournament, the Heritage, on the senior circuit. Now Alltel Corp., a major force in mortgage servicing support, will have its name on a football stadium.
Alltel will pay $6.2 million to put its name on the municipal stadium in Jacksonville, Fla.,for the next 10 years. The stadium is the home of the Jaguars of the National Football League, and Jacksonville is the home of Alltel.