How brokers can help homeowners tap into equity
Home equity lines of credit (HELOCs) returned to the mortgage headlines in 2025, as borrowers tapped record home equity to pay off record amounts of consumer debt.
In a lower-rate environment, many people who took out a HELOC may have opted for a cash-out refinance instead. But because they were unwilling to give up a low-rate first mortgage, they went with the second lien instead.
For brokers who haven’t looked into a HELOC product in a few years, the product has changed. Traditional banks once handled many HELOCs, but over the last few years, that has shifted to independent mortgage banks and non-QM lenders, according to one executive.
Tom Hutchens (pictured top), president of Angel Oak Mortgage Solutions, said not only have HELOCs moved away from banks, but how homeowners are required to use them has changed as well.
“This is the first time that HELOCs have really gone to the independent mortgage lender versus a big bank,” Hutchens told Mortgage Professional America. “The banks don't do HELOCs anymore. It used to be that you walked into your bank, and you knew the banker. They would look at what you owed, they would do some kind of property analysis, and they'd say, ‘Okay, here's your $150,000 HELOC, and you don't even have to draw on it.’
“Here's a checkbook, pay a processing fee, and then you've got access to this capital. They don't do that anymore. Those days have ended.”
Using the HELOC is required
One of the biggest changes that brokers who haven’t dealt with HELOCs since the move from big banks will notice is that homeowners are often required to take a draw now. Hutchens said this is so investors can get a return on the new line of credit.
“Now if somebody wants a HELOC, they need to go to an originator at an independent mortgage bank and get that loan,” Hutchens said. That's what's changed about the market. Also, it used to be that you just got the line, and you didn’t have to tap into it. But since this is really private capital coming into the market and supporting these HELOCs, there has to be a pretty sizable piece taken at the very beginning.”
Hutchens said it’s not unusual for the borrower to be required to draw down a majority of the available funds at loan closing. This means homeowners usually plan to use the money right away when opening a HELOC, rather than keeping it available as a rainy-day fund.
“Most, if not every lender, now requires 80%,” he said. “Let's say you have a $200,000 loan. You have to take $160,000 because these loans are not securitizable. If there is a zero balance, investors aren't going to invest in something that doesn't give them a return. The only way there's a return is if there's a balance. Most of them have five-year draw periods, so they can pay it down and up and manage it how they will. But right out of the gate, they have to take a draw.
“So most of these borrowers, they have a use for the money, like, ‘I'm doing this, and so I need the money,’ versus, ‘I just want the security of having a HELOC like an emergency fund if I want to tap into it.’”
Not giving up low-rate mortgages
As home prices continue to rise and borrowers pay a larger share of their principal due to extremely low rates, equity continues to climb. Hutchens said borrowers could tap into a wealth of available equity with HELOCs.
“I think the last report I saw there's $11 trillion of tappable home equity in America today,” he said. “Meaning by adding a HELOC, you still wouldn't exceed an 80% combined loan-to-value. The mortgage industry is trucking along at $1 trillion to $1.5 trillion a year. So we've got a long runway for continuing to originate these HELOCs.”
Hutchens believes borrowers with 2% and 3% mortgages simply aren’t going to give them up unless they have to move. In the meantime, until rates drop enough for a refinance to make sense, using a second-lien product is the best way for them to make the most of their built-up equity. It can be especially helpful to consolidate high-rate consumer debt.
“There's going to be a segment that is never going to give up that 2.5% or 3% rate,” he said. “They're just not going to. They don't need to upsize or move to a better school district. Whatever the stories are, there's a segment that will stay there. But sitting on that much equity, at some point, they're going to have a purpose for it, and the HELOC is the way.
“The other piece that I think is pretty important for the need for HELOCs is that credit card debt is also at an all-time high. I know the current administration is trying to cap some interest rates and all that. I don't know if that's going to work or where we are with that, but even so, people really could use the equity that they have in their house to get out from under high-rate credit card debt.”
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This article is part of our Monthly Spotlight series, which in February focuses on HELOCs. Full coverage can be found here.
