Omar Jordan of LenderClose on the Evolving Home Equity Loan Market
Omar Jordan is Founder and CEO of LenderClose, West Des Moines, Iowa, a fintech that equips loan originators with the workflows needed to boost efficiencies and shorten the lending cycle through streamlined and meaningful integrations. He founded LenderClose in 2015. Prevoiusly, he founded National Loan Closings and Iowa Loan Closings, both of which were later acquired. He also serves on the Board of Directors of the Iowa Mortgage Association.
MBA NEWSLINK: Talk about starting LenderClose and why you wanted to focus on home equity loans.
OMAR JORDAN, LENDERCLOSE: When the company started five years ago, the goal was to create a single channel for real estate and equity loan processing. LenderClose is really a platform that can assist with any type of real estate loan: first lien, second lien, refinance, purchase or home equity loans for primary residence, second home or a commercial real estate.
However, we have done exceptionally well in the non-conforming real estate and home equity lending space due to our ability to interact and work with our clients on process enhancements. We are not just a product and a technology company. We insert ourselves as partners. Their objectives are ours. Our focus is building technology solutions to help our clients achieve speed, efficiency and continue the journey toward the ultimate borrower experience.
NEWSLINK: How has the home equity market changed? Has the market become more difficult to operate in? More regulations? More competition?
JORDAN: I think it has been interesting to see how the market goes through cycles. We have done a good job at LenderClose by continuing to bring value to our clients. I think home equity is a fun space to be in right now, especially for lenders that are looking to give their borrowers the Amazon Prime lending experience.
The industry is not more difficult to originate in; it is absolutely wide open, which is why we are starting to see competing fintechs enter the home equity lending space. And values continue to rise which increases the potential for equity lending. We are not going to see market values slowdown anytime soon.
Another factor to consider is interest rates are starting to creep up. What happens when rates are high? People are not going to touch their low interest first mortgage loans. So we will start to see second lien loan requests increase.
As far as the regulatory environment, closed-ended loans need to follow TRID guidelines and open-ended loans do not. It is not rocket science; it’s black and white. What we are seeing is that lenders tend to treat those loans differently from a process perspective. For example, ordering an appraisal on a closed-end loan vs. being OK with an AVM on a line of credit.
Those unnecessary internal guidelines are what make the lending cycle unattractive for staff to originate and the borrowers to apply for. It begs the question of: What risk are we trying to eliminate by injecting added steps into the process?
NEWSLINK: Is every homeowner with equity a good candidate for a HE loan? Why or why not?
JORDAN: That is a big question, and the short answer is no. I am not advocating that QM loan requirements are imposed here. But I am a champion for the process of “validation” through technology, which means we do not have to ask the borrower to submit paystubs, W2s and three years of tax returns. There is an API for all of the above. Financial institutions have a massive advantage if they partner with the right fintechs to level-up their process. Same goes for homeowners’ insurance, valuation and non-traditional title and lien search process.
Borrowers should absolutely meet certain debt to income ratio and loan-to-value requirements based on certain factors. And all this must be done through technology and APIs, not via fax machines and PDF files.
NEWSLINK: How can financial institutions ensure they are doing the right thing when it comes to originating home equity loans?
JORDAN: There is no need to over complicate the matter. Here are three things to remember:
- Understand the guidelines. Assign someone or a team of folks, if necessary, to get well acquainted with the regulations and requirements to prevent any bumps in the road.
- Create a process around those guidelines with automation and technology that includes integrated solutions.
- Then just go and do it.
Remember to ask: What does the next generation of borrowers expect the process to be? It does not matter what you think they want.
NEWSLINK: Do you think the GSEs will ever have a bigger appetite for home equity loans?
JORDAN: Absolutely. GSEs have an obligation to their shareholders to continue generating revenue. As we start seeing a shift for non-conforming loan programs, GSEs will want to get in on this opportunity.
NEWSLINK: Should institutions consider keeping these loans once they are originated?
JORDAN: I am a big fan of portfolio lending, so yes. It strengthens the relationship between the customer and their bank or credit union. It creates stickiness. It also generates revenue and healthier profit margins for the financial institution. As the rates change, lenders will wonder when they should ramp up or redistribute resources related to their HE efforts. Instead of waiting, now is the time for lenders to work on building their HE business.
NEWSLINK: When do you think large lenders will resume making home equity loans?
JORDAN: Large lenders, or publicly traded companies, have a single important focus: Investors.
Keep in mind lending is a bank’s or a credit union’s bread and butter. It is what drives the highest margins. Look at your next mortgage statement and it will tell you how much of your monthly payment went towards interest vs. the principal balance of your mortgage loan. I do not know when exactly lenders such as Wells Fargo or Chase will resume their home equity lending programs. However, I suspect as soon as they start noticing the market slowing down on the first mortgage origination side, we will see a pivot into home equities. This will ring true especially as we continue to see an increase in real estate valuations and a shortage of housing for at least the next few years.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at email@example.com; or Michael Tucker, editorial manager, at firstname.lastname@example.org.)