What’s driving the increased trading of home equity loans?

Activity in the secondary market for home equity loans, also known as 2nd lien loans, has ramped up across most market segments in 2018. The spur behind the increased trading has been greater supply driven by higher prices, according to a new report from MountainView Financial Solutions, a Situs company.

“Competition for re-performing and non-performing 1st lien loans has caused investors to look at other asset classes within the residential mortgage market to try to achieve better returns,” said Jonas Roth, a managing director at MountainView and the author of the report. “Those investors have taken a more positive view of 2nd lien loans and driven up pricing. Rising prices have in turn caused more investors that are typically holders of the product to sell and take advantage of current market conditions.”

Pricing for performing 2nd liens has steadily increased year over year and is higher today than it has been in the last eight years. Performing loans with interest rates above 6 percent and borrower credit scores above 660 are trading for 80-100 cents on the dollar and even higher in a few cases.

Re-performing 2nd lien prices also continue to improve. MountainView’s report states that prices are now in the range of mid-40s to high-60s cents on the dollar, after being in the mid-teens to high-20s in prior years.

Non-performing 2nd liens trade as actively as performing and re-performing 2nd liens, according to Roth. As with other market segments, increased pricing since 2017 has led to increased supply. Current pricing for secured non-performing 2nds generally ranges from the mid-teens to high-20s.

MountainView’s report is available for download.