Home-equity lending accelerated in the second quarter of 2018, although the outstanding supply of home-equity lines of credit and closed-end seconds continued on its years-long downward trajectory, a new Inside Mortgage Finance analysis reveals.

Mortgage lenders generated an estimated $54.0 billion in new home-equity loans during the second quarter, up 18.7 percent from the first three months of the year. That also represented a slight 1.1 percent increase from the second quarter of 2017.

Although official figures on home-equity debt outstanding from the Federal Reserve are not yet available, banks, thrifts and credit unions hold roughly 95 percent of the market on their balance sheets. As of June, depository institutions had $521.0 billion of HELOCs and closed-end seconds on their books, a 1.6 percent decline from March.

Total home-equity debt has been dropping steadily over the past decade to less than half the amount outstanding at the market’s peak back at the end of 2007. The first-lien mortgage market shrank for a long time as well, but began to recover three years ago.

Homeowners are sitting on a mountain of potential borrowing. Black Knight estimates there was $6.06 trillion of “tappable” home equity at the end of March that would still leave homeowners with 20 percent equity in their properties. That was about 2.7 times the untapped home-equity at the bottom of the housing market and 21 percent more than at the market’s peak, the firm said.

There was a small 0.1 percent increase in unused HELOC commitments made by depository institutions during the second quarter, although at $481.2 billion it accounted for just 7.9 percent of the amount available, according to Black Knight’s estimates.

Credit unions continued to punch above their weight. Call-report data show credit unions made $9.59 billion in home-equity loans during the second quarter, a 27.8 percent surge from the first three months of the year. Their balance sheets held $56.3 billion of HELOCs, a 3.2 percent increase from March, while banks and thrifts reported declines of 3.1 percent and 3.3 percent, respectively.

Bank of America and Wells Fargo remain the top players in the home-equity market. BofA held $53.17 billion of HELOCs and closed-end seconds in its portfolio at the end of June, tops in the industry. The bank reported $2.90 billion in new HELOC commitments during the second quarter, down 22.7 percent from the previous three-month period, while most of its top competitors reported increases in new commitments.

Wells reported a 16.3 percent gain in new commitments and an 11.2 percent increase in new HELOC draws. The company also had $61.19 billion of untapped HELOC commitments on its books, the biggest such pipeline of potential new business in the industry.

Rising interest rates should tempt more homeowners with very-low rates on their first mortgages into the home-equity market. The 2017 tax cuts certainly don’t help the market any as they include new restrictions on the deductibility of home-equity debt and the higher standard deduction is expected to reduce the number of taxpayers who itemize.

But home-equity loans are still cheaper than credit cards and may make more sense than student loans for many households. ♦