HELOC Balances In Q4 Show Growth According To Fed

Mortgage News March 13, 2023

According to recent reports from the US central banker, home equity line of credit (HELOC) balances grew in the fourth quarter of 2022, while first mortgage activity remained flat at banks. However, despite credit being widely available for high-quality borrowers, individuals with lower credit scores are experiencing tighter lending conditions.

On Jan. 31 and Feb. 1, during the joint meetings with the Board of Governors of the Federal Reserve and the Federal Open Market Committee, officials discussed the overall state of the market. The report indicated that while the US economic growth was expected to moderate this year, there was still a wide range of views on the extent of the slowdown. Market participants also viewed incoming data as pointing to moderating inflation risks.

In light of these developments, market participants believed that the Federal Open Market Committee (FOMC) would slow the pace of rate increases further at the meeting. In addition, respondents to the Survey of Primary Dealers and Survey of Market Participants expected the Committee to implement a one-quarter percentage point increase in the target range for the federal funds rate.

Despite this positive outlook, credit was found to be relatively tight for households with lower credit scores, with first mortgage applications remaining flat during the period. However, the story was different for second mortgages, as HELOC balances at banks continued to grow in the fourth quarter, potentially reflecting homeowners using HELOCs as a more preferred means of extracting home equity during this period of high current mortgage rates.

Overall, the reports indicate that HELOCs are becoming an increasingly popular way for homeowners to access home equity, particularly when faced with high mortgage rates. Although credit is available for borrowers with higher credit scores, individuals with lower credit scores are experiencing tighter lending conditions, highlighting the need for increased access to credit for all borrowers.

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