The home equity line of credit (HELOC), once a standard financial tool for American homeowners, is now nearly unavailable from mainstream lenders. Geoff Ball, President of HD Lending, LLC, describes HELOCs as “one of the hardest loans to get in the industry,” pointing to a dramatic shift in the lending landscape.
Ball, a hard-money lender in Arizona since 2003, says the HELOC market has narrowed to a handful of credit unions and small institutions. Even well-qualified borrowers now face much stricter underwriting standards. “It’s mostly done by credit unions and small institutions,” Ball says. “The underwriting is extremely heavy, even for borrowers with high credit, good income, and low debt-to-income ratios, because they see it as a higher-risk product.”
Ball says today’s typical HELOC applicant has significant home equity and needs a relatively modest sum—usually less than $100,000—but cannot or will not refinance their first mortgage. The main reason is the low rate on their primary loan.
“Many borrowers have a first mortgage below 4% and want to keep it,” Ball explains. “They’re looking for a secondary loan instead of refinancing into a much higher rate.”
Ball notes that his firm’s second mortgage product, despite being his “most expensive loan,” is in high demand. “I don’t advertise that product, but it’s very popular,” he says.
The most common uses for these loans are debt consolidation and home improvement. “The average loan size for the second mortgage is under $100,000,” Ball says. “People use it to resolve financial issues and move forward.”
HELOCs have largely disappeared from large banks due to increased regulatory requirements and reduced appetite for risk following the 2008 financial crisis. Ball says the few remaining HELOC lenders have responded by making qualifications much more stringent, effectively excluding many borrowers who would have qualified easily in the past.
This has created a mismatch: strong demand from homeowners with equity, but a minimal supply of traditional HELOCs. Many homeowners who built up equity during the long housing boom now find themselves unable to tap into it without giving up their low-rate first mortgage.
The result is higher borrowing costs for those who do find alternatives. Ball acknowledges that his second mortgage rates are significantly higher than HELOC rates would have been, but says borrowers accept this because other options have largely disappeared.
Private lenders like Ball’s firm have moved to fill the gap, but their products are fundamentally different from traditional HELOCs. HELOCs typically offer variable rates tied to prime and low closing costs. In contrast, private second mortgages come with fixed rates several percentage points above conforming mortgages, reflecting their higher risk and lack of institutional backing.
Ball says his strategy is to ensure a “net tangible benefit” for borrowers, even at higher rates. “A lot of times we’re consolidating debt or funding home improvements, but also helping borrowers get back on track so they can eventually qualify for institutional financing again,” he says.
This approach has found a steady clientele. Ball reports that his firm consistently handles about 10 loans per month, with most originating from mortgage brokers and bankers who cannot place borrowers with traditional lenders.
The disappearance of HELOCs from major banks has broader consequences for financial access and household wealth. Many homeowners, whose home equity is often their most significant asset, now have limited options for accessing it without selling their home or refinancing at a much higher interest rate.
Ball says the trend reflects a change in how banks assess risk and allocate capital. Regulatory changes since 2008 have made many loan products less attractive to large institutions, even for borrowers with firm financial profiles.
For now, there is little sign that traditional lenders will return to the HELOC market in significant numbers. Ball expects his business to remain steady over the next year, indicating that the shortage of affordable second mortgages is unlikely to ease soon.
Whether the current scarcity of HELOCs is a permanent change or a temporary market disruption depends on future regulatory shifts or the introduction of new lending models. For now, homeowners seeking to tap their equity must choose between costly private loans or leaving their capital locked in their homes.
Ball’s experience suggests the gap between borrower demand and institutional supply will continue. Until banks re-enter the HELOC market or new products emerge, expensive private second mortgages remain the only option for many homeowners who need access to their home equity.
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