The home equity loan, derailed by the recession, is beginning a slow comeback nationwide.
But not in Wichita, where consumers are still running scared of debt.
"We're still doing home equity loans. We'd love to be doing home equity loans," said Gary Schmitt, who heads residential lending at Intrust Bank.
"The problem is we're not getting very many inquiries or requests. I think the consumer is still very, very hesitant to jump back into acquiring more debt."
The result is a significant Wichita-area slowdown in remodeling and renovation projects, making for an aggressive Home Show, which concludes today at Century II, as builders try to jump start their 2011 business.
"It is tight," said Chad Bryan of Southwest Remodeling in Wichita. "Today, we have a lot of cash clients. For the longest time, especially on our larger products, 50 to 60 percent were equity loans. Now, it's more like 25 or 30 percent, and there are a lot of people out there right now who are very excited about remodeling."
But, Bryan said, many of them can't get their banker to share the excitement.
"Many of our deals go right down to the signed contract, and then the people go to the bank and they can't get the loan," he said. "We've lost a good amount of business to people who just can't qualify for the funds."
Wichita's tight home equity market bucks a national trend, with many mid-size banks jumping back into the home equity loan market.
Risen from the dead
Nationally, the home equity loan has risen from the dead, said Stu Feldstein, president at SMR Research, a New Jersey firm that tracks the home loan market.
"There was a super severe problem from two vantage points — the consumer and the lender — that lasted for three years, and the problem was falling property values," Feldstein said.
"The lenders who had the home equity lines of credit are typically in the junior lien position on the loan, and then in foreclosure they lost everything. The loan losses on home equity and second mortgages were horrific. Home equity became a four-letter word, as a guy at a Big 4 bank put it."
But attitudes are shifting nationally, Feldstein said, and they'll shift the same way in Wichita — eventually.
"Lenders see it as an opportunity right now, and it is for some of them because it's not for others," he said. "The comeback is not yet a national trend but some of the regional banks taking part in the bounceback are significant — SunTrust, PNC, Associated Bank, Regions Bank."
Feldstein's faith in the Kansas market is grounded in its relative home price stability — and not so much in the slow return of consumer confidence damaged by the recession.
"The untold side of this for the loan consumer is the income reductions the working have suffered in the recession, which affected more people than just unemployment.
"The fact is, a lot of people are making less. This recession was brutal for all consumers, and that drove loan demand down."
Sense of security
Like many struggling sectors of the Wichita economy, people will start putting money into their homes when their sense of financial security is restored, said Byron Tucker of LeaderOne Financial in Wichita.
"I imagine we'll see a rebound here when home values stabilize," Tucker said. "These loans are pretty difficult right now unless you've got a substantial amount of equity in the house. I haven't done a refinance or had a client pull out cash in about a year."
Local layoffs need to die down, and it wouldn't hurt if negative national real estate publicity dies down with it, Tucker said.
"I don't think we had the bubble like the sand states did, but we had the fear of God instilled in us because of that," Tucker said.
A little boost in big lender confidence wouldn't hurt either, Bryan said.
"It's pretty bank specific right now," he said. "Some of the banks that aren't the more national ones are taking a more aggressive line.
"I'm not talking B, C or D credit, but they are loaning aggressively to more qualified clients. The days of the B, C and D market might be gone."