By Ray Birch
BOSTON—One analyst believes there is a big opportunity for credit unions to be found in Baby Boomers and home equity loans.
Christine Pratt, senior credit analyst at Aite Group, told CUToday.info that the number of home equity lines has fallen sharply since 2005, and at the same time a lot of Boomers today have paid off their homes or are close to doing so. That makes Boomers a prime target for an equity line of credit or loan, she suggested.
“The mortgage business is slow,” said Pratt. “What we are seeing is a mortgage market that has dropped in the number of total mortgages by about 12 million since 2005.”
In 2005, there were 64 million home mortgages in the U.S. compared to 54 million today.
$6 Trillion In Equity
In addition, in 2005 there were 37 million home equity products and today there are 15 million, said Pratt. And the dollars have dropped by about a half-trillion over that time. The dollars had just topped $1 trillion in 2005 and today outstanding home equities stand around $545 billion.
“Now you have this Boomer generation that’s sitting on about $6 trillion in real estate equity. They have all this money they can use, but they are not using it,” she said.
Pratt explained that one of the reasons many Boomers have not tapped into their home’s equity is because they have been waiting for home values to fully recover. But with home prices rising steadily again, many homes across the country have recovered much of the value lost during the recession.
Pratt also pointed out that data show that the younger generations, those under 35, are not buying homes at the same pace as older generations, in part due to difficulty saving downpayments. Not surprisingly, those under 35 continue to represent a smaller portion of U.S. homeowners, with Aite data shows that in 2008, those under 35 comprised 41% of U.S. homeowners, compared to 34% today.
That makes it even more important for lenders to look for new mortgage lending opportunities, Pratt said.
“Here is the opportunity: there are 52 million mortgages today, every one of them could conceivably have a home equity product attached to it. But there are only 15 million home equities right now,” explained Pratt. “So if Boomers are your largest generation of homeowners, why aren’t you looking into those mortgages?”
No Reverse Mortgage
Pratt said Boomers in need of cash are reluctant to take out a reverse mortgage because they don’t trust those products. She reminded that many older Americans, as they approach retirement, like to downsize their home.
“And they might want to buy another home before they sell their current home and a home equity line would help them do that—and they would generally prefer to take out that line while they are still working,” she said.
Pratt recommended that credit unions dig into their own data to find Boomers who would be a good target for a home equity product. She also suggested working with mortgage servicing firms, along with credit bureaus, to target Boomers outside the existing membership.