Banks Retain

JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc., the top four U.S. banks by assets, hold $319.6 billion of the loans, about half of the outstanding balance of $652.6 billion, according to the Federal Deposit Insurance Corp. Bank of America has the most home-equity loans, at $102.6 billion.

Unlike first-lien mortgages, banks retain most of their equity originations on their books. Only about 2 percent are securitized on the secondary market, said Feldstein. There are two kinds of home-equity mortgages: lines of credit, known as Helocs, and closed-end loans borrowed in lump sums.

Helocs are adjustable loans tied to the prime rate, the interest charged by banks to their most creditworthy customers, with the addition of a margin pre-determined by the lender. The national average prime rate has been 3.25 percent since the end of 2008, as measured by Bloomberg.

Average Rates

The average rate for a Heloc last week was 5.11 percent, down from 5.22 percent a year ago, according to Bankrate.com, an interest-rate aggregator in North Palm Beach, Florida. That puts the average margin at close to 2 percent.

Closed-end loans, sometimes called He-loans, are usually fixed-rate junior mortgages. The average U.S. rate for a closed- end loan was 6.13 percent last week, according to Bankrate. A year ago, the rate was 6.39 percent.

About $6.5 trillion of residential real estate value evaporated after a wave of mortgage defaults sparked the 2008 financial crisis. The median U.S. home price hit bottom in 2012 after a 33 percent drop, as measured by the National Association of Realtors. In February, the median price was up 12 percent from a year earlier, the trade group said last week.

Take Risks

“Owners who have been sitting in their homes and watching their equity go up will be more likely to borrow and to spend, and more likely to take risks like looking for another house,” said Craig Focardi, senior research director at CEB TowerGroup. “Having home equity is a financial cushion to the average consumer’s personal balance sheet.”