Jim Leath of Equifax Mortgage Services: The Return of the HELOC Market
The HELOC Business is Booming, But Traditional Lenders Risk Losing Market Share
Jim Leath is senior vice president National Sales for Equifax Mortgage Services, Atlanta. He has more than 30 years of experience in the financial services and mortgage industries focusing on sales and business strategies.
Rising home values, flat wage growth, record levels of consumer debt, continued inflation and interest rate uncertainty have driven home equity line of credit loan origination to record highs. Many lenders are seeing an increase in requests for HELOCs from homeowners looking to take advantage of their tappable equity. According to recent Equifax research, in 2022 around 1.36 million HELOCs were originated, which is a 38.5% increase from 2021. As of December 2022, the total credit limit on HELOCs originated was $179.3 billion, a 45.4% increase from the previous year.
The good news for mortgage lenders is that they already have the inside track into this growing market because they hold the borrowers’ first mortgages. The bad news? Sophisticated non-bank lenders are leveraging key advances in financial technology (fintech) to deliver the faster, more seamless loan experience that today’s homeowners want.
Customers now expect more from their HELOC lenders and are requesting a more personalized experience with high-touch digital online channels and mobile app experiences. However, with uncertainty around interest rates and continued inflation, HELOC borrowers are more likely than ever to choose to tap into their equity to remodel or upgrade their existing home rather than purchase a new one.
Demographics are Changing
For decades the home equity loan business depended on baby boomers to drive sales. That was the generation that was having children and putting additions onto their homes. Today, though, millennial home debt exceeds baby boomer home debt for the first time in history, and younger borrowers are becoming less likely to pick up a phone or walk into a branch office to take out a loan.
Younger borrowers increasingly expect a seamless loan process that can be initiated and completed on their mobile devices. Millennials are becoming more comfortable with the idea of tapping their home equity, but still wish they had a faster and more convenient way of applying for these loans.
But it’s not just younger homeowners who don’t want to go through the hassle of taking out a paper-based home equity loan. Borrowers at every age are more likely to go with the lender that offers the fastest, most frictionless option.
The Home Equity Business is Ripe for Digitalization
Because HELOCs are less complex than writing traditional mortgages, lenders can reap the rewards of automation faster. The key is instant access to data.
Third-party verification can provide real-time verification of both the homeowner’s employment, income and debt status and the current market value of the property. That means that the approval process can be cut from days to just minutes, moving more loans through the pipeline faster and dramatically reducing processing costs.
Non-bank Competition is on the Rise
The HELOC industry is facing increased competition from digitally savvy fintech lenders that can deliver cash quickly for traditional home equity lending. Also, unlike a HELOC, a home equity share agreement (an alternative to borrowing that started in 2005, that instead of payments and interest rates, it uses an exchange of dollars for a percentage of equity at a future date) permits homeowners to access hard cash from their home equity without payments or interest accruing.
With rising interest rates and home prices impacting the younger demographic’s ability to qualify for HELOCs and the emergence of home equity companies – younger HELOC customers are far more likely to consider alternative products, such as unsecured personal loans. That’s because HELOC providers have been slow to deliver the digital experiences that today’s customers expect.
Gaining the Digital Advantage
Digitalization has created a tremendous opportunity for lenders to capitalize on new opportunities in the HELOC market, but engaging younger borrowers is only half of the equation. Automating the loan process can help to boost efficiencies, cut costs and therefore, increase profits – focusing on forward and the needs of the industry.
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