Once-popular loan Americans use to finance home renovations and college tuition is slowly dying, slashing a lucrative source of revenue for the nation’s largest banks.
Home equity lines of credit, open-ended loans that homeowners tap for cash using their properties as collateral, exploded in the run-up to the housing crash a decade ago, doubling in volume from 2003 to 2006, according to the Federal Reserve Bank of New York. Rapidly climbing property prices led homeowners to use their homes as piggy banks, fueling consumer spending.
But a resurgent housing market after the Great Recession hasn’t brought with it a return to Helocs, as they’re commonly known. Home equity lines have fallen by almost half in the past decade, New York Fed data show.
The loans, which comprised 5% of the nation’s banking assets in 2009, now account for less than 2%, according to the Federal Deposit Insurance Corp.
Record levels of home equity spurred by soaring home prices and stagnant mortgage borrowing haven’t prompted households to use a ready resource as a way to fund big-ticket purchases or home improvements. Finance executives have spent years researching the issue to figure out how to jump-start a business that had always been a reliable and relatively low-risk source of earnings.