Scott Carpenter

Thu, Jun 5, 2025, 8:25 AM5 min read

(Bloomberg) -- Wall Street is cranking up the bond machine as US homeowners — finding that buying a new house is out of reach after mortgage rates started climbing in 2022 – are instead getting home equity loans and sprucing up their current properties.

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Roughly $18 billion of bonds, backed by consumer loans on everything from second mortgages to loans that get repaid from future home value, were issued last year, according to data compiled by Deutsche Bank AG and Bloomberg. That’s triple the amount in the year prior, and sales are on pace for a similar level in 2025.

Buying a new house now can mean giving up a 30-year mortgage with a 2.75% rate and taking on a new one that’s closer to 7%, effectively making buying a home much more expensive. Instead, many households are staying put and dipping into their home equity to pay for renovations and other purchases.

There’s a near record $35 trillion of that equity to tap into. Lenders are paying attention.

“They’re taking their mortgage-making factories and starting to use them to create home equity products,” said Gabe Rivera, co-head of securitized products at PGIM.

Investment firms are scooping up the loans and then repackaging hundreds or thousands of them at a time into bonds of varying size and risk, a process known as securitization. This year, Atlanta-based Angel Oak Capital Advisors and New York’s Annaly Capital Management Inc. both issued their first-ever bonds secured by home equity lines of credit. In April, mortgage servicing giant Mr. Cooper Group Inc. joined the growing ranks with its first bond backed by second mortgages.

Home equity-backed bonds are still a relatively small corner of the market, at least compared with the vast bond offerings for mortgages guaranteed by the quasi-government entities Fannie Mae, Freddie Mac and their sister organization Ginnie Mae. Together, the trio are expected to crank out some $1.15 trillion of MBS this year alone, according to Citigroup Inc. estimates.

Still, the field is growing. TPG Angelo Gordon estimates there’s a $2 trillion market for home equity products. And thanks to tighter lending standards and regulations, the debt also appears safer than in the 2008 financial crisis, when many borrowers in riskier loans fell into foreclosure.