Housing Bubble 2.0: Home Equity Loans Soar To Highest Level Since 2008


It seems as though the practice of using one’s home as a personal ATM machine is making a ‘yuge’ comeback of late thanks, at least in part, to the same aggressive lending terms and attractive teaser rates that nearly sank the world economy just under a decade ago. According to the Wall Street Journal and Equifax, home equity originations soared to $46 billion in 2Q 2017, the highest level since the market collapsed in 2008.

“If customers feel like their home values are stable or increasing, and if they feel like their job prospects are good—that they will have the ability to pay back a loan they take—then they will start to take out more home-equity lines,” said Mike Kinane, head of U.S. consumer-lending products at TD Bank. “That is what we are starting to see.”

Home-equity line originations rose 8% to nearly $46 billion in the second quarter, their highest level since 2008, according to credit-reporting firm Equifax . Borrowing via cash-out mortgage refinances hit $15 billion, up 6% from a year earlier, according to recent data from Freddie Mac.

The main engine driving demand: rising home prices. The median sale price of an existing home rose to $263,800 in June, the highest on record, up 40% from $187,900 at the start of 2014, according to the National Association of Realtors.

But, don’t worry because the banks and loan officers re-inflating the housing bubble are here to assure you that it’s all different this time around…

Banks insist the increased borrowing doesn’t herald a return to housing-bubble days when consumers came to view their homes as cash registers. Banks say they are being more cautious in how they make such loans and some add they are encouraging borrowers to tackle renovations or consolidate debt—uses that are considered investments rather than luxuries.

“We continue to watch what’s going on and the way it’s being done, but it’s much different from before the crisis,” said Tom Wind, head of U.S. Bancorp ’s home-mortgage division. Mr. Wind added that the bank expects this type of borrowing to keep rebounding because the equity in people’s homes is “meaningful and people want things like renovations.”

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