Prospectus. Home Equity Loans, 2013 A Time Of Change

Transcription

1 Prospectus Home Equity Loans, 2013 A Time Of Change Loan Production Up; First Time Since 2006 Loans Outstanding Crash In The Refi Boom The Heloc 10-Year Maturity Dilemma Progress On Delinquency: Sudden Stop Why Loan Demand Will Rise More Sharply Industry Metrics; Top 100 Player Rankings Portfolios & Market Shares Heloc & Closed-End Breakout Data Heloc Draw-Down Rates Summary of the Study Page 2 Highlights Pages 3-4 Receivables: Down Originations: Up The 10-Year Heloc Maturity Dilemma Competition Outline of Contents Pages 5-7 Finding the Customer Page 8 ORDER FORM INSERTED SMR Research Corporation 300 Valentine St. Hackettstown, NJ Phone Fax

2 SUMMARY OF THE STUDY Huge changes are underway now in the home equity lending business: The mortgage refinancing boom has paid off thousands of existing home equity loans, causing the biggest one-year decline ever recorded in U.S. loans outstanding. But at the same time, production of new home equity loans finally increased in 2012 after five long years of steady, sharp decline. And, the future in loan production looks even better. Credit quality, the bane of the industry, was improving steadily. But now, the improvement has stopped. Lenders are just beginning to cope with a swell of Heloc borrowers reaching their 10-year anniversary dates the moment when most will face higher, fully amortizing monthly payments. How big will the 10-year conversion dilemma become? Is it something to fear in terms of defaults? Or is this the opportunity of a lifetime to originate new Helocs to replace the maturing loans? This year s annual SMR study of the home equity lending business covers these events and more. A special section includes counts of numbers of Heloc borrowers reaching their 10-year anniversary dates in 2013, 2014, 2015, and The numbers are absolutely gigantic. Change in the industry is occurring at high speed on these subjects and others. Credit unions, outselling banks, have hit 10% market share. Wells Fargo has overtaken industry-leader Bank of America in total approved Heloc credit lines. Closed-end home equity loans have hit a new low, and Helocs have achieved a record share of the market. Perhaps most importantly, mortgage interest rates are now rising. Soon, home owners who need cash will no longer want a refi, and the home equity loan will again become the product of choice. In short, nearly all that was true from in home equity lending is now changing. See the Outline of Contents in this Prospectus for details on this year s coverage. See Highlights for more on the key events of the moment. An Order Form is enclosed or available on our web site. Thanks. Page 2

3 Receivables: Down HIGHLIGHTS In 2012, a true mortgage refinancing boom was underway. Home equity loans by the tens of thousands were being paid off in the process. The government s HARP2 program, heavily used, made matters worse. By the end of the year, total industrywide home equity loans outstanding had plummeted more than 11% from It was the biggest single-year drop in history, leaving the total market well below $750 billion. This business once had topped $1 trillion. Huge sums of anticipated (and badly needed) interest income disappeared in How about 2013 and beyond? More change, we believe, is coming, and this time in a positive direction. See below for more on that. Originations: Up Home equity loan production fell by an enormous amount from 2007 through Each year saw double-digit annual percentage declines. In 2009 just one year annual loan production dropped by nearly 30%. Now, production is rising again. The increase in 2012 was modest by historic standards, but in comparison to prior recent years, it was a huge win. What happened? We have devoted a large section of this year s study to analysis of likely future increases in home equity loan production. Underpinning our optimism are SMR data, illustrated in chart form, showing the long correlation between owner equity in housing and annual home equity loan volume. Equity is rising and for more reasons than just the recent increases in home prices. At the same time, mortgage refinances are ebbing already and will stop almost entirely when interest rates rise. What some folks don t realize is how long this stoppage will last. A special SMR analysis of current borrowers shows a large majority may never refinance again once mortgage rates rise more substantially (and they will). We foresee a near future when home owners who need cash will turn back to the home equity loan to get it. And with time, more and more will qualify. Page 3

4 HIGHLIGHTS (continued) The 10-Year Heloc Maturity Dilemma If you look back at the historical data, you find a big swell in numbers of Helocs originated from 2003 to Now, a lot of those loans are going to reach their 10-year anniversary dates the moment when most Helocs end their draw period and become fully amortizing loans, requiring higher monthly payments. This could be a big new problem for Heloc credit quality. Some people have trouble making higher payments. Indeed, it could help explain why, at the end of 2012, the Heloc delinquency rate was getting worse, as highlighted in the Credit Quality section of the study. Or, this could be the opportunity of a lifetime in new loan production, since so many borrowers will likely want to refinance their existing Helocs into new ones, resuming interest-only payments. However you view this event, Step 1 is to scope out the size of it. We have done so through analysis (one loan at a time) of some 42 million home owners, where we have origination dates for those with home equity loans. The results are staggering. Some of the loans no longer exist due to moves or refinances. But those that remain are still immense. Section VI of the study includes the SMR study of 10-year Heloc maturities. Competition Although there are plenty of industrywide subjects to cover this year, we continue as well to rank the major players in the home equity business. We have the Top 100 banks and credit unions (thrifts are now banks), ranked by total home equity receivables, with Heloc and closed-end loan breakouts, change from the prior year, market shares, and Heloc line utilization rates. There s more company-by-company data, too, on loan delinquency and net chargeoffs through yearend Wells Fargo now exceeds Bank of America in total extended Heloc credit lines, but not yet in outstandings. PNC is moving up. HSBC has fallen sharply. See all the rankings in Section IV. Page 4

5 I. Introduction Outline Of Contents A. Many Changes And All At Once! 1. Loan Production Up, First Time Since Record Decline In Outstandings 3. Credit Quality Improvement Trend Stops 4. New Wave Of 10-Year Heloc Maturities B. Big Stories; Sub-Stories C. Home Equity Loans & U.S. Economics 1. Waiting For The Fed 2. And, Hiding In The Shadows a. Long Life & Good Health: Where Cheer Meets Fear b. U.S. Energy Production: A Transformative Event 1) Implications For Lenders II. Key Industry Metrics A. The News Is Bad And Good B. The Outstandings Debacle: Huge Decline Driven By Mortgage Refis C. The Originations Improvement 1. Credit Unions: Up 3.23% 2. Banks Up A Bit Less D. Helocs Continue To Take Share E. Line Utilization Begins To Drop F. About The Data 1. Defining The Home Equity Loan 2. Where We Get Data 3. Determining Origination Volumes G. Key Metrics Tables 1. The Home Equity Market By Institutional Type Of Player, Home Equity Loan Outstandings, Home Equity Lines Of Credit Outstanding, Closed-End Home Equity Loans Outstanding, Market Share: Open-End Vs. Closed-End 6. Home Equity Loan Originations, Home Equity Credit Quality At U.S. Bank Holding Companies a. 90-plus Delinquency Rate & Net Chargeoff Rate, Average Loan Sizes From HMDA Reports 9. Industry-Average Credit Line Utilization Rates, III. Why Loan Production Will Keep Rising A. Behind The Increase Trend B. 6 Reasons Why Home Owner Equity Is Rising C. Owner Equity & Loan Production Correlation 1. Chart: Owner Equity & Loan Production Correlation D. Will Home Prices Really Keep Rising? 1. Still Some Doubters Page 5

6 Outline Of Contents (continued) 2. The Inverted Bubble 3. Chart: Home Prices & Per Capita Incomes, E. Home Prices & Interest Rates: Be Careful What You Believe 1. Despite News Reports, Correlation Is Poor 2. Chart: Home Prices & Mortgage Interest Rates, F. Better Correlation: Weak Vs. Strong Economies; Consumer Attitudes G. Bottom Line On Loan Production: Mildly Positive Now, Better Later On H. A Longer Look Ahead: A New Golden Age For Home Equity Lending 1. The Five-Year Refi Cycle: Gone 2. Quantifying The Future: Numbers Of Home Owners Unlikely To Refinance 3. Tables: Study Of Mortgages Outstanding, January 2013 a. Distributions Of Loans By Interest Rate, Term, & Balances b. 77% Unlikely To Refinance In The Future I. Rising Mortgage Rates: When, And How High? IV. Top Players In Home Equity A. Top Players In Outstandings: The Shrinkage Continues 1. Many Did Better 2. Old Thrifts; New Banks 3. Industry Deconsolidation, Revisited B. Change In Closed-End C. Heloc Leaders D. Lenders By Dollar Change In Receivables E. About Odd Names On The Lists F. Top Player Tables 1. Top 25 Home Equity Lenders, 2012 vs & Market Shares 2. Top 25 Heloc Lenders, 2012, Change From 2011 & Market Shares 3. Top 25 Closed-End Lenders, 2012, Change From 2011 & Market Shares 4. Remaining Top 100 Lenders, Remaining Top 100 Heloc Lenders, Remaining Top 100 Closed-End Lenders, Winners & Losers: Dollar Change In Portfolio, Top Players Ranked By Total Heloc Credit Lines, 2012 V. Credit Quality: A Wrong Turn A. The Improvement Stops; A Pause, Or Something More? 1. Credit Unions Look Fine 2. Problem: The Rest Of The Industry B. The 2012 Accounting Change For Delinquencies C. Bank Holding Company Totals Tables 1. Portfolios, 90-Plus Del., Day Del., Chargeoffs, Recoveries, & NCO 12/31/2012 vs. 6/30/2012; Heloc & Closed-End Breakouts D. The Credit Impact Of Surging Refinances 1. HARP2 2. Conventional Refis Page 6

7 Outline Of Contents (continued) E. What Else Went Wrong? F. Potential Threat Of Surge In 10-Year Heloc Maturities G. Solution: Remix. More New, Good Loans Needed H. Company-By-Company Results I. Lender Ranking Tables: Worst-To-Best 1. Rates Of High Delinquency 2. Heloc-Only Delinquency 3. Net Chargeoff Rates VI. The 10-Year Maturity Dilemma: Danger & Opportunity A. About The Dilemma B. How Big Is This Going To Be? A New SMR Study C. Summary Findings: Study Of 46.2 Million Home Owners With Debt 1. HE Loans Wiped Out By Refis 2. Numbers Of Borrowers With Helocs Reaching 10-Year Maturity In 2013, 2014, 2015, and 2016 D. Dynamic Scenario 1. 1 In 10 Home Owners! 2. Some Will Disappear Before Will They Make Higher Payments? E. Or, Is The Glass Half Full? 1. Marketing Opportunity Of A Lifetime F. Where Will All This Take Place? 1. Data On Largest U.S. Counties: Numbers Of Borrowers Reaching 10-Year Dates; Percent Of All Home Owners With Debt VII. Cities: Finding The Big Helocs A. Loan Production Rising: Where Are The Big Loan Opportunities? B. New Study Based On Credit Union Research C. Variance By City In Heloc Size: Over 5-Fold D. Tables: 192 Cities Ranked; Largest To Smallest Avg Heloc Outstanding & Largest-To-Smallest Heloc Credit Lines Appendix: Company Vital Statistics SMR s annual vital statistics on lenders include all with home equity loans of $200 million or more (more than 200 competitors for 2012). Companies are listed alphabetically for easy peer-competitor viewing. Data items include portfolio size, change from the prior year, delinquency rate, net chargeoff rate, Heloc draw-down rate, company type, name, and city and state location. Page 7

8 Finding The Customer This research study, we believe, makes clear that the recent increase in home equity loan production is only the beginning of a long upward trend. If you want to participate, you can wait for customers to walk in the door, or you can be pro-active. Since 2005, SMR has been creating monthly updated scores that rankorder home owners for their likelihood to get a home equity loan during the next four months. Among all the predictive model scores we create, our home equity loan score is probably the best: highly predictive, and with a long, strong track record. You can use high-scored names and addresses for new prospect marketing. Or, we can append home equity probability scores to your company s existing customer list. As far as we know, SMR is the only U.S. firm that has built a home equity loan probability score. And we apply it to more than 50 million home owners even to those who have no first-lien mortgage. Using our property records database, we are able to model against a closedloan result. That is, our scores are designed to forecast not merely who will apply for a loan, but who will be approved and get that loan. In short, the scores forecast both desire for a loan, and qualification to get it. And additional layers of data are available to add. Right now, for example, we can screen for existing home equity customers coming close to their 10-year maturity dates. Many will want a new Heloc to replace an existing one. Toss in the SMR score, and you have a winning combination for new loan generation. We all know that ultimately, mortgage rates are going to rise substantially, and mortgage refinances will come to an end. Then, home owners who need cash will turn to the home equity loan again. Your company can get its share of this coming surge and more besides using good data. For more information on home equity scores, contact Jon Varone: , or Jonathan.Varone@SMRresearch.com. Page 8