Are Lenders Ready for the Next HELOC Boom?
After a sharp downward trend, home equity lines of credit (HELOCs) are at long last making a rebound.
An estimated $202.4 billion of home-equity loans were originated last year, including home-equity lines of credit and closed-end second mortgages – a 5.4 percent gain from 2016. And TransUnion forecasts that approximately 10 million consumers will originate a HELOC by 2022.
The timing couldn’t be better for lenders, who are watching the refinance wave dry up. But there’s a catch: While HELOC originations are experiencing an upswing, they are not rising as rapidly as expected. Even with consumer confidence up, the mortgage crisis continues to cast a long shadow. Rising interest rates are prompting some uncertainty amongst homebuyers. And there is stiff competition from other lending products, including unsecured loans.
There’s also another factor in play: Homeowners who are prime candidates for HELOCs may not realize the value of their biggest asset.
Carving out space in this market will require a one-two punch: targeted marketing and enhanced speed to close. In short, convincing homeowners to tap into their home’s equity is going to require lenders to dig into the data.
According to the 2017 Raddon Research Insights on Lending report, millennials and Gen X households have a higher-than-average demand for HELOCs. However, 50 percent of high-income millennial households and 43 percent of Gen X households do not know the state of their home’s value.
That creates a tremendous marketing opportunity for savvy lenders.
First, lenders need to help borrowers see their home’s growing equity as a viable source of funding for items on their wish list – and they need to push its advantages over other products, such as consumer loans. Low interest rates are a prime advantage to highlight.
Lenders with servicing platforms that provide a single source of truth on a borrower can up the ante by targeting existing borrowers with highly personalized campaigns that marry their demographic information with the potential equity in their homes. These campaigns can even be augmented with statistical information provided by commercial data providers.
From there, it’s a simple matter of illustrating how borrowers can put their biggest asset to work for them.
For example, messaging to millennials could focus on renovating vintage homes or housing stock in urban cores. Campaigns aimed at boomers could focus on making home improvements that support aging in place. HELOCs qualify for tax deductions when they are used to improve property, making them a very attractive option for funding these types of projects.
And when it comes to Gen-Xers, data analytics is particularly critical for targeted marketing. Campaigns for these households could span the gamut from adding space to accommodate a growing family to using equity as an affordable and stable means to pay for college.
A Higher Level of Convenience
Using data for targeted marking is only half of the equation. Putting borrower data to work during the origination process is also key. Lenders will be better positioned to compete in this market if they can offer a level of speed to close that the competition cannot.
In this case, lenders need to have the ability to use existing data to streamline the application and underwriting process. For example, when an existing borrower is ready to take out a HELOC, she shouldn’t have to provide basic information like name, address and other data. This information should be automatically prepopulated on the application, saving time and hassle for both the borrower and the loan officer.
From there, lenders can build out their digital capabilities across platforms. Sending a borrower a link to an application via email – and even offering an online application portal – better aligns with borrower expectations for speed and convenience.
A holistic view
Just as homeowners may not realize the value of their biggest asset, many lenders do not take full advantage of the data that is under their roof. But to maximize growth in this HELOC boom, lenders need to be ready to respond quickly and operate efficiently.
Easier said than done? Not with the right servicing platform in place. An integrated platform with smart automation and real-time access to information can turbocharge borrower outreach and engagement activities.
Platforms that support multiple product lines can provide lenders with a trove of data in one location. Lenders can assemble a holistic profile of their borrowers, from their age and number of children to their credit capacity. And when a borrower reaches out wanting to know what their home’s equity can do for them, the loan officer should be able to answer quickly and with confidence. Platforms that can manage difficult credit insurance products will further improve efficiency on both the front end and throughout the loan’s lifecycle.
The conditions are favorable for borrowers to tap into their home equity – lenders just need to help them see it. With a more complete picture of their borrowers, lenders can more effectively show borrowers what’s possible.