With mortgage rates, home values and consumer confidence all trending upward, consumers are once again tapping into their home equity. Lenders who want to capitalize on this trend must respond to changes in the home equity line of credit (HELOC) and home equity loan market, including demand for 24/7 digital lending options.
Consumers expect a digital banking experience they can access anytime, anywhere – but as the world becomes mobile-enabled, the lending industry has lagged behind. If lenders want to meet these expectations, they must proactively implement digital capabilities for online loan options, approvals and documentation.
Is your financial institution ready for the next wave of home equity lending?
The Changing Home Equity Market
HELOC volume has increased 22 percent since 2010 to $56 billion, according to the Mortgage Bankers Association. Although loan volumes are increasing, the number of HELOCs dropped more than 70 percent since their peak in 2004 and 2005, according to figures from the Federal Reserve.
As a decade of interest-only payments comes to an end, lenders are experiencing a wave of ten-year loan resets while borrowers face much higher payments and a higher possibility for defaults. To meet the changing needs of consumers and effectively respond to the growing number of HELOC borrowers who need assistance, lenders require enterprise-wide technology investments.
Focus on Digital Channels
First, lenders must focus on digital and mobile platforms that provide borrowing opportunities consumers can access at their fingertips. More consumers use mobile-enabled channels to help make credit decisions and complete online applications. According to the 2014 Fiserv Consumer Trends Survey, 38% of HELOC originations were completed online.
The survey also found that 75% of survey respondents over the age of 60 use online banking, and 22% of seniors used mobile banking last year – up 266% year-over-year.
Consumers of all ages want to use digital channels for lending – even non-user interest in trying digital banking services has increased greatly since the year before.
Despite this interest, many lenders remain focused on in-branch operations, expecting borrowers to visit the branch for lending activities. It’s clear that this expectation may no longer be aligned with the trajectory of consumer behavior. It’s time to move lending lifecycle functions to digital channels.
No Longer Business as Usual
Due to the nature of home equity lending and the impact of HELOC amortizations, home equity borrowers need quick, convenient access to information to make decisions on loan origination and refinancing options. In today’s market, lenders cannot operate with a “business as usual” model.
Embracing the next generation of technology means supporting online loan application, paperless processes for disclosures and closing, and digital signatures. Borrowers expect digital and mobile access to real-time account and payment status with online chat, 24/7 call centers and feature-rich websites and mobile apps.
Lenders must use digital delivery channels to reduce the number of days it takes to complete a step in the approval process. However, many lenders are operating as they always have. For example, during the appraisal process, they may wait several days between ordering an appraisal, communicating with the borrower and completing the appraisal. This could create a 14-day turn time – just for the appraisal process.
Facing the Crunch
Efficient, automated processes can help lenders support current HELOC borrowers who need assistance as their 10-year reset approaches. Home equity lines have varying terms, conditions and features; proper loan administration can be difficult without a flexible solution that provides a total picture of a borrower’s credit worthiness and manages data accordingly.
Lenders can quickly communicate with a borrower by sharing information via online origination, text status updates and/or requests. Such communication also helps ensure compliance with regulations related to secure exchange of documentation, including the TILA-RESPA Integrated Disclosures Act.
With the standardization of lending, a better consumer experience is a true differentiator. When home equity borrowers – especially those in a refinancing crunch or worse – are able to view their balance, update financial information and learn about viable workout options digitally, a lengthy process can be reduced to a matter of days. This increases satisfaction for borrowers and lenders alike.
Ongoing communication with borrowers is also key, especially that which leverages digital channels to increase borrower engagement and the speed of direct communication. Existing methods like letters and phone calls are showing diminishing returns; lenders must take advantage of technology-based notifications that align to customer preferences and lifestyles.
Responding to the Resurgence in Home Equity
Consumer confidence in the economy is giving borrowers the fortitude to take advantage of increasing home values. The resulting uptick in home equity lending could stress most lending operations.
Constant digital connection raises consumer expectations: lenders must embrace the next generation of technology. Borrowers of every generation are going online to check balances, look at rates, make payments or receive text message updates regarding their finances.
Mobile capabilities are no longer optional for the lending industry. From loan origination to status updates and payoff, lenders must meet growing consumer demand for a comprehensive, mobile-enabled home equity lending experience.
