Home Equity Loan Lowdown

Tool to help lenders evaluate property instantly over internet introduced

Low interest rates and tax benefits have been constantly fuelling the home equity loan market. Every month loan services companies process up to 300 – 500 applications. The overflow of information and buzz around home equity loans has made borrowers savvy and rate conscious. This has led to strong motivations for the same borrower to approach several lenders for a home equity loan.

Integrated Loan Services, a loan services company offering solutions to lenders and financial institutions have identified this trend. To offer collateral assessment reports they have developed a new product called ‘Automated Collateral Assessment’. It allows bankers and brokers to get property values instantaneously and to obtain the information over the Internet. This means a lender can get a good picture of the value of a property on the spot and, if they prefer online.

With home equity loan market booming, many lenders have started using tools similar to ILS developed ‘Automated Collateral Assesment’. Lenders who have been using such tools have found them to be immensely effective and have also admitted the tools role in speedy clearance of loan applications, which otherwise was complex and time consuming.At the same time, lenders have declared that such tools are not always accurate and cannot be used for every loan application. These should be completely avoided for multi-family, condos and mixed-use properties. It is also not recommended for loans with higher LTVs

Assessments tools are a great aid but they must be used carefully.

Drop in Housing has no impact on the loans market

As per the Home Stats paper of the recent economic indicator report card, released by the United States Census Bureau, the number of permits approved to build new houses has declined in month of October.

For October 2005, the U.S. Census Bureau and Department of Housing and Urban Development announced that privately-owned housing starts were at a seasonally adjusted annual rate of 2,014,000. In comparison to September's estimate of 2,134,000, this is a 5.6% decline. It also represents a 2.3% drop below the October 2004 rate of 2,062,000.

Though the decline has been significant, there has been absolutely no impact on the home equity loans market. Experts attribute this to the spill over from past months in which both the home equity loans and home approvals were high. This has absorbed any impact that would have otherwise been evident.

Experts have also observed that there have been single month house stats declines in past, but these were only followed by sharp spikes. Hence it cannot be concluded that either home market or the home equity loan market is losing steam just yet.

Home Equity Loan applications on a downslide

Spiralling rates have made their impact felt, which has led to a significant drop in home sales. As a result, mortgage applications have touched an all time low in the past six months. In a survey conducted by real estate consulting firm, Real Trends, it was found that the number of home-purchase contracts signed last month dropped 8 percent from a year earlier with the study sample including 48 large real estate brokerage firms scattered across the country.

With rates indicating an upward trend, borrowers who need a mortgage or have an ARM that is nearing its adjustment date are likely better off if they move quickly to take out a new mortgage.

A 30-year fixed-rate mortgage is still relatively attractive. To shave a bit off their rate, borrowers should consider hybrid ARMs, some analysts suggest. Hybrid ARMs carry a fixed rate for as long as 10 years.

Read More: Mortgages get more expensive

Ameriquest Mortgage to offer $2 billion in asset-backed securities

Ameriquest Mortgage is one of the biggest U.S. mortgage lenders specializing in refinance loans, home mortgage loans, and new home purchases. It has disclosed its plans to offer $2 billion of asset-backed securities supported by home equity loans.

A team led by JP Morgan Securities and Barclays Capital will be underwriters for the offering that include Deutsche Bank and RBS Greenwich Capital

Read More: Ameriquest Mortgage to set $2 bln home equity ABS

New Ways to tap Home Equity

It has been noticed that rising interest rates are slowing the growth of home equity borrowing. Lenders are launching new set of plans to attract borrowers and to keep existing homeowners from paying off their loans. US Bank, a unit of US Bancorp, announced a home-equity loan with a rate of 5.99 percent fixed over 20 years. J.P. Morgan Chase & Co. has cut by half a percentage point the rate it offers some borrowers on its home-equity lines of credit.

Other banks are also offering enticements to keep customers who are worried about rising rates from paying off their home equity lines of credit. Home equity lending has boomed in the US in recent years. a record number of Americans have taken advantage of low rates and rising home values. Profit margins on home equity lines of credit are twice as high as compared to other banking products such as credit cards. The Detroit News reports:

The value of home-equity lines of credit at commercial banks increased 17 percent in September over the previous year, according to the Federal Reserve. That was well below the 45 percent annual growth rate seen last fall.

Benefits of Home Equity Loan

When home values rise and the prime rate declines, many homeowners have the opportunity to obtain a home equity loan. It will help them to use their equity to get a good amount of loan. They can use the amount to pay for their projects, car purchasing or renovating the house. Funding such projects through a line of credit or a home equity loan can be a smart choice for some homeowners.

Home equity rates are often lower than credit card interest rates. A homeowner can tap up to 100 percent of the home’s equity through a home equity line versus 90 percent by refinancing. Unlike long-term mortgages, home equity loans have shorter terms. Loan terms on home equity loan can be 10, 15 or 30 years. gfn.com reports:

Homeowners with already low-interest first mortgages might not benefit from refinancing, but they can take advantage of the appreciation in their property value by accessing a home equity loan or line of credit. Many homeowners took advantage of the last refinancing boom to lower the interest rate on their first mortgages.