Homeowner equity is at the highest it has been since the recession. Property values have stabilized, there has been a significant amount of loan paydowns and home prices continue to rise. These factors indicate that home equity growth will continue. Lenders now have the ability to capture additional market share by looking more closely at home equity lines of credit (HELOC)s.
With rates remaining at historic lows, lenders have been primarily focused on first purchase and refinances, as there is not enough of a push to grab the home equity market share. If and when interest rates start to rise, HELOCS are going to become more attractive to consumers. Lenders should start preparing their processes in anticipation of a rate hike in order to capture that market.
For quite some time, HELOCS have not received enough attention or budget allocations at lending institutions. Lenders do not know how to capitalize on that segment of the business; they need to better understand how to process and pay for no closing cost options or low intro rates. However, lenders do not need a huge budget to capture more home equity market share. In fact, lenders can effectively capitalize on the systems they have in place and partner with companies that have the solutions they need.
The initial step in creating a successful home equity line of business is realizing that change needs to transpire for them to compete in the existing and future markets. The second step is attracting borrowers through marketing, Google campaigns and paid ads. Next, educating borrowers about the benefits of HELOCs (consolidating high-interest credit cards, tax credit, etc.) is important.
According to a JD Power study on HELOC satisfaction, 88 percent of consumers indicated they started the HELOC process without being prompted by a lender. Even more millennials, 94 percent, said they initiated the process without a lender.
In order to be a top tier HELOCS originator in the current market, lenders need to:
- Have a strong online (digital) presence. After finding potential borrowers, lenders must offer a better digital experience to capture the market. The aforementioned JD Power study also showed that the digital experience is becoming more critical to consumer satisfaction. Currently, millennials have more equity with the rise in prices and 59 percent of this demographic gathers its information online and 50 percent are doing so via smartphones. Lenders have not been actively marketing to this group. This is a crucial area of improvement.
- Have a streamline loan fulfillment process. Turn the loan around quickly at a low cost.
- Offer a competitive product. Lenders can find cost savings in production and other areas to offer products with low introductory rates and a no/low closing cost option.
While these might seem to be common sense features, many lenders do not have them in place because their home equity divisions do not receive the same attention or budget as the purchase or refi areas, which tend to bring in more money than home equity. This means lenders need to find resources that will help them build their home equity efforts with their existing budget.
There is a misconception that lenders will either need to spend a lot of money or build a solution internally to be able to offer the features mentioned. There are business partners who have already created the solutions they need to compete effectively with other lenders who have established home equity efforts. The technology exists that can help with the front end, digital marketing experts and every other aspect of the business. There are some lenders who are content with their current level of home equity loans; however, as the market starts to shrink, they could be at risk of going out of business. Because everyone is going to be fighting for a piece of the smaller pie, only the lenders who have taken proactive steps to ensure they have all the correct processes in place will succeed.
Jorge Ponce is Director of Product and Vendor Management at Austin, Texas-based FirstClose, a highly respected provider of best-in-class property & borrower data intelligence and settlement services nationwide. FirstClose specializes in delivering a powerful web app and LOS plugin that is the industry’s first and only home equity and refi tool that offers everything from application to servicing (credit score, valuation, title, tax, flood, closing and recording) on one easy-to-navigate platform. By delivering simplified vendor management and consolidating vendors into one platform, FirstClose makes it easy to identify and repair the gaps where lender profits can be maximized.