HELOC Lending Volumes Bound 27% in Q2

Mortgage originations rebounded in the second quarter as home equity lending stepped up in activity, according to a report released Monday.

Experian estimates new mortgage origination volumes totaled $292 billion for the months of April through June, reflecting a 15 percent increase from a slow first quarter.

Home equity lines of credit (HELOCs) led in gains for the quarter, totaling $35 billion—up 25 percent over the same period last year. Over the last 12 months, HELOC originations totaled $120 billion, marking a 27 percent increase from the prior period.

According to Experian, HELOC lending rose by double digits throughout all regions compared to a year ago, led by the West Coast, where new originations were up 27 percent year-over-year. Most of that growth can be credited to California, which passed all other states in terms of HELOC dollars origination with $5.9 billion.

Also outperforming the other regions in Q2 was the Northwest, where HELOC volumes were up 15 percent, with New York contributing $2.2 billion in volumes.

While HELOCs have helped fill the gap left by receding demand for refinancing, the mortgage sector has still felt the absence of refinancing profits since the end of the boom.

"Home lending had an incredible two-year period from Q2 2011 to Q2 2013, with $4 trillion in mortgage origination volume; 71 percent of that, or $2.9 trillion, came from home refinancing," said Linda Haran, senior director of product management and strategy for Experian Decision Analytics. "A look behind those numbers tells us that the total dollars originated over the past four quarters are about $1.3 trillion versus $1.8 trillion, showing a 30 percent decrease in annual origination volumes from the refinancing boom."

Despite the nearly one-third drop, Haran remains optimistic for the mortgage market as home purchase lending takes up a greater share.

"This equates to new purchase activity increasing by 22 percent in Q2 2014 from last year, signaling that consumers are getting back into the market," she said. "In the long term, this appears to set up the market for continued purchases into spring and summer of 2015."

Though purchase loan share is up, the percentages hide a concerning lack of activity. In a recent analysis, Capital Economics reported mortgage applications for home purchase loans in August were at a near 20-year low, with most applications geared toward the high end of the housing market.

"[T]he average value of a mortgage application for home purchase has increased far more than average house prices over the past couple of years," said Paul Diggle, property economist for Capital Economics. "It seems that only high earners with (presumably) strong credit scores are currently confident enough to apply for mortgage finance."