July 28, 2014

Loan sales heat up amid rising interest in home equity and NPLs

Loan sales have been picking up steam, as the rising interest in home equity loans and non-performing loan securitizations helps increase the value of such transactions.

Home equity lending surges
Homeowners have started dipping into the value of their properties once again, with figures provided by Equifax and reported on by The Wall Street Journal showing that these individuals took out $23.4 billion in the first quarter. This metric represented the largest amount for a three-month period since 2008.

They tapped more than 230,000 of these home equity lines of credit in the first quarter, marking a 9 percent increase over the same time in 2013, according to the news source. The average HELOC was for $100,027, up 4 percent from the first quarter of last year and the largest amount since 2008.

Many conditions bolster HELOC market
Homeowners are flocking to these lines of credit as banks promote them, The Boston Globe reported. Rising home values, improving economic conditions and the low interest-rate environment are all helping spur home equity lending.

Low interest rates entice homeowners
Bank officials and analysts have provided greater insight into these borrowing costs, stating that rates on HELOCs are averaging 4.5 percent, according to the news source. However, homeowners with substantial equity and strong credit can land rates below 3 percent.

Mortgage-information website HSH.com provided different figures, which nonetheless showed falling rates, The Wall Street Journal reported. Data supplied by this site showed that borrowing costs for these loans averaged 5.01 percent in June, down from 5.16 percent one year before.

Rates on HELOCs generally lag below those of other loans since they are secured, but have remained especially low in recent years because they are predominantly linked to the Prime rate. The benchmark yield has held steady at 3.25 percent since 2010.

Analysts confident about market
While low interest rates and favorable economic conditions help push demand for HELOCs higher, few analysts and bankers are worried that the market for these lines of credit will develop the froth it did during the recent housing boom, The Boston Globe reported.

Figures from real estate tracking company Warren Group showed that while home equity borrowing rose 7 percent in 2013 to 37,000 loans, this figure represented a fraction of the more than 100,000 of these credit lines issued in 2007, according to the news source. 

NPL securitizations return
Sales of these securities have increased as banks grow more willing to offer them and investors are drawn by their higher yields, The Financial Times reported. In 2013, U.S. financial institutions sold $8.96 billion of these bonds, according to Deutsche Bank estimates.

This year's total could be even higher, as at the time of report, organizations had sold $5 billion worth of these securities so far in 2014, according to the news source. One banker, who provides financing for these financial instruments, commented on the market.

"The people who buy are hedge funds, money managers, folks who need to buy higher-yielding assets," the person told the news source. "Of course, high yield these days is, like, 3 percent."

Individuals interested in learning more about loan sales - including those involving non-performing debt - might consider speaking with Garnet Capital Advisers, which has considerable experience in this space.