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Recession Lesson: Fewer Owners Tapping Into Home Equity

Using HELOCs and cash-out refinancings, some homeowners once thought of home equity as their personal piggy bank. But the housing recession changed many minds.

NEW YORK – Fewer U.S. homeowners are tapping home equity lines of credit (HELOCs) to help pay for expenses such as renovations and college tuition.

The open-ended loans use homeowners’ properties as collateral so that spending built-up equity is as easy as writing a check. However, they now represent less than 2% of the nation’s banking assets – down from 5% in 2009, according to the Federal Deposit Insurance Corp.

The change comes in spite of a huge increase in total U.S. home equity. Black Knight Inc. reports that Americans collectively boasted $6.3 trillion of housing equity they could borrow against as of June – more than double the $2.6 trillion total in 2009.

Finance industry executives attribute the decline in HELOCs to an unusual trend in interest-rate spreads, easy online access to unsecured personal loans, and psychological fallout from the 2008 housing crisis.

Source: Bloomberg (10/28/19) Everett, Gwen; Nasiripour, Shahien

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