Steve Ferringer of INCENTER LLC on Home Equity Lending

Steve Ferringer is Executive Vice President of Enterprise Business Development with INCENTER LLC, Fort Washington, Pa. Incenter helps mortgage bankers optimize processes and improve performance. More information is available at incenterms.com; Ferringer can be contacted at steve.ferringer@incenterms.com.

MBA NEWSLINK: Home equity loans are a big topic of industry conversation. How important is this product opportunity currently and in the longer term?

STEVE FERRINGER, INCENTER LLC: To maintain market leadership, mortgage lenders must quickly respond to the shifting needs of their borrowers, members and prospective customers. Home equity loans/second mortgages and HELOCs have become critical arrows in their quiver.

These products offer two primary advantages:

• They help broaden mortgage bankers’ positioning from home lending experts to trusted financial partners. Individuals tap into their home equity for a number of reasons—from home improvement to unlocking cash for additional investments. Home equity lending can make them part of the broader solution for the longer term.
• From a human resources standpoint, they provide new opportunities to tap into existing talent as sales of other products decline. With the right processes in place, bankers can easily shift into second mortgages and HELOCs.

NEWSLINK: What are some of the challenges involved in getting into this business or expanding products and services?

FERRINGER: Nonbank lenders have to overcome two major hurdles: 1) They’re not usually considered for these products and 2) to gain market share, their service must wow their customers from day one.

Every new borrower will expect an easy experience. Today, for example, consumers can walk into a bank without any documentation, and qualify for a car loan within minutes. The process of receiving a second mortgage or HELOC can be even more impressive than that. The key is to streamline every part of the lending cycle—from title reports and appraisals to closing—so that it is seamless for the end consumer.

NEWSLINK: If everyone starts competing for a piece of the pie, how can lenders differentiate what they offer?

FERRINGER: The ability to adapt transactions according to different loan sizes, geographic requirements, and borrower segments (from high-net-worth individuals to fixed-income retirees) will be a powerful differentiator.

But given the pressures on banks’ margins—and the complexity of available loan types, each with their own processes, risk tolerances and underwriting requirements—this requires a carefully tiered approach. It’s important to “rightsize” product/service delivery—title, valuation, closing and post-closing—according to the opportunity at hand (no more, no less).

Traditional home equity processes have been built for speed, but they’re so “cookie cutter” that that they can actually slow transactions.

For example, a HELOC applicant with a strong credit pull, coupled with a solid instant title hit, should be able to move to closing more speedily than an individual with a less attractive credit or instant title response.

The banks that execute each transaction with surgical precision will excel at leading in this space while optimizing their efficiency and improving their margins.

NEWSLINK: What questions should lenders ask themselves before developing a home equity loan strategy? What goals and outcomes should they be thinking about?

FERRINGER: Lenders should align their strategy with their broader loan portfolio. That will enable them to assess their full requirements, including a “best execution” approach to the secondary market when they are not holding the loans.

They should set aggressive performance goals—both for offering fast, convenient borrower services, and consistently delivering on the various requirements of the secondary market, too.

NEWSLINK: Where can technology make the biggest difference for lenders looking to succeed in this space—and why?

FERRINGER: Any automation that enables them to achieve speed, versatility and loan-level precision should be on the table, given the variety of delivery options they’ll need to fulfill with a consistent level of service.

On the title side, for example, they could need a single-owner report with/without a wrapper, a single- or two-owner report with a full ALTA policy, a title update, lenders policy search, etc.

A loan might also require an interior or exterior appraisal inspection and/or flood certification.

Getting to the closing table, some borrowers might prefer traditional signings, while others would do well with a digital approach. Post-closing, there are different ways to handle recording, escrow and disbursement efficiently.

In this context, lenders will want to investigate solutions for fast, accurate title decisioning, remote/desktop appraisals, AVMs, RON and IPEN, as well as teams with flood zone certification expertise.

(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 msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)