Ed Austin of SingleSource Property Solutions: The State of Home Equity Lending
Ed Austin is chief operating officer of SingleSource Property Solutions, a provider of property services supporting the U.S. housing industry, where he is responsible for the company’s overall operations and growth. He has more than 25 years of appraisal and title management experience and has developed relationships with many of the top 20 U.S. mortgage lenders. He graduated from West Virginia University where he received a Bachelor of Science Degree in Business Management. He can be reached at email@example.com.
MBA NEWSLINK: What is the current state of the home-equity business?
ED AUSTIN, SingleSource: We have seen a large increase in business from our customers that do home equity lending, especially for our valuation products and solutions, online closings, and bundled services. We expect that to continue, given the direction the economy is headed. As inflation grows, more Americans are tapping into their home’s equity to manage their debt. In fact, according to a December report from TransUnion, home equity loan volumes are at the highest level in 15 years and are expected to increase by 37 percent in 2023, from 2.7 million loans in 2022 to 3.7 million. Even though home prices are starting to soften in many markets, home values remain strong thanks to low inventory, so many homeowners are sitting on a substantial amount of equity.
NEWSLINK: How can home-equity lenders reduce the cost to originate the product?
AUSTIN: Reducing costs is certainly on the mind of every lender, especially with higher interest rates impacting purchase volume. The problem is that many lenders are working with fewer resources because they have been cutting staff, so they are struggling to maximize growing home equity loan opportunities. Other lenders have very little experience with home equity products because they have been so focused on purchase and refi volume over the past several years.
For these reasons, one of the best ways to reduce origination costs is by utilizing the right mix of home equity products and services. For instance, one of the biggest costs with originating home equity loans is valuations. With the right provider, lenders can skip having to order a full appraisal and obtain less expensive alternative valuations, such as drive-by reports, hybrid appraisal reports and automated valuation models with property inspections. Another way to reduce costs is by choosing a home equity partner that bundles its services, which enables lenders to get everything they need faster and less expensively, all from in one place.
NEWSLINK: What kind of services are “bundled?”
AUSTIN: It really depends on what an individual lender needs, but our own bundled home equity products and services include title reports, valuations, and inspections, and much more. Within each of these services, multiple options are available as well. For example, we offer title opinions with E&O coverage on home equity products that are far less costly than title policies on purchase loans. We even offer online closing services through our national network of notaries and real estate attorneys.
NEWSLINK: What should prospective bundled users look for in a home equity platform?
AUSTIN: In today’s market, it’s extremely important that a lender’s home equity platform is built on modern, integrated technology and makes it easy for lenders to access the services they need in a cost-effective manner. Lenders also need a platform with online reporting capabilities, which can speed up turn times tremendously, as well as mobile applications that make it easy for third-party vendors to deliver information from the field.
Ultimately, a lender should be able to order the products and services they need from one place and have them delivered within one to three business days. That means they not only need a partner with great technology, but also a company that has a long track record of delivering the services they need on time and at the lowest possible cost.
NEWSLINK: What are some popular uses for home equity loan proceeds?
AUSTIN: Many of our clients are originating home equity products so their customers can finance property improvements, often because they are now working from home and need more space. Another popular use is to finance their children’s college education. With inflation rising, many clients are also selling home equity loans to borrowers who are trying to decrease their overall debt. Even at today’s relatively higher interest rates, home equity loan rates are significantly lower than most other forms of debt, including personal loans, car loans and credit cards.
NEWSLINK: How does the risk profile on a second mortgage compare to the risk on a first mortgage?
AUSTIN: Because the loan amount is much lower on home equity products, generally speaking, there is less risk. If a second mortgage lender also holds the first mortgage, then they already have a great deal of information on the borrower and property, which brings the level of risk down further. This creates opportunities to use alternative products and services, such as desktop appraisals or automated valuations that are coupled with a property condition report.
NEWSLINK: How does second mortgage loan processing compare to first mortgages?
AUSTIN: Home equity transactions are less complex than purchase loans, for obvious reasons. The challenge for most lenders, again, is that home equity loans have not been their primary focus until recently. So, they need access to great products, services and technology, processing home equity loans. The good news is that home equity demand is not likely to let up anytime soon, so there’s still time to get the right strategy in place and strike while the iron is hot.
(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 firstname.lastname@example.org; or Michael Tucker, editorial manager, at email@example.com.)