PERSON OF THE WEEK: As home prices hit record highs in the first quarter of 2022, U.S. homeowners made big gains in their home equity. Now, community lenders must stand ready to help homeowners tap into that equity to help meet their future needs.
But what is the opportunity for community lenders offering home equity loans? Discover, MortgageOrb recently interviewed Allen Jingst, Chief Revenue Officer for LenderClose.
Q: You predict that 2022 will be an unprecedented year for home loans. Why is that?
Jingst: The early months of 2022 are a bit of a crossroads for lenders as they see the historic low-rate refi boom more visible in the rearview mirror than on the horizon. In the not-too-distant future, they face strong headwinds: rising rates, a housing shortage, a shortage of automobiles, and record numbers of homeowners who have recently refinanced or purchased a home.
While the challenges may worsen, meanwhile, Black Knight recently reported that net worth of exploitable property hit an all-time high of $9.4 trillion in the third quarter of 2021. As rates rise, interest on credit cards and other debt will also rise, giving homeowners a way to capitalize on their home’s equity to restructure their debt or a low-rate option to turn the equity into the income they need in 2022.
Q: How can community lenders expand their lending options to meet today’s market needs?
Jingst: Because community lenders had a physical presence, they previously had an advantage over competing fintechs. However, this is no longer enough. Some fintechs are competing with FIs by using technology to meet borrowers not just where they live, but where they spend time: online.
To test this, search for “home equity loan in [your city]” and see which company appears at the top of the list; it’s probably not a community lender. Additionally, fintechs are also using platforms like Instagram, TikTok, and Pinterest to reach homeowners who have gone beyond simply making financial decisions based on which bank has a branch downstairs.
Some community lender leaders are reluctant to advertise because they are understaffed and unsure they can handle the extra volume of applications while still providing the right borrower experience. This is where identifying fintechs that can help and harnessing them is crucial to navigating the digital world. There are many credit union service organizations (CUSOs) and technology companies focused on credit unions and community banks with the goal of equipping them with the tools and technology they need to build their presence in the community. community and meet the needs of today’s overall market, not just people who want to go to the branch.
Q: What do you think are the reasons why financial institutions have chosen not to offer home equity loans so far?
Jingst: Many FIs have made infrastructural changes over the past 18-24 months that have placed home loans under their mortgage department in order to reallocate staff to focus on the increased number of refinance applications. As a result, home equity loans took longer than in previous years because they were treated the same as a refinance. This has led to a decline in the volume of home equity loans and a decline in borrower satisfaction.
As market conditions change, so do FIs’ views on home equity. They separate home equity lending into an independent department, focusing on technology and service upgrades to equip staff with better resources to speed up the process and provide a better borrower experience. FIs are also feeling increased pressure from competing fintechs that are not bound by branches and geographic boundaries. In the coming years, they must focus on pursuing current and potential borrowers with new and innovative, digitally driven technology.
Q: What needs to happen for financial institutions to accept home equity loans?
Jingst: It starts from the top. If the leadership team challenges the rest of the organization to look at options such as home equity loans to help borrowers, set clear goals for the team, and teach frontline staff to be able to ask a question, they will be surprised at what can happen. For community lenders, only 4% of customers on average have a home loan with this financial institution. This is a problem, and until leaders see this as a problem and take the necessary steps to change this in their organization, borrowers will continue to seek help elsewhere.
Q: What should leaders do if they want to expand home equity loan offerings in their FI?
Jingst: The first step is to know what the expansion of home equity loans means. When we meet lenders, many are surprised to see where they rank against their peers in terms of total real estate portfolio strength, loan conversion rates, average time to close and borrower satisfaction. Getting a fresh perspective on what’s possible can reveal opportunities that may not have been obvious.
Once management understands the FI’s current position, there are many ways to help implement new technologies, products, processes and ways of thinking that can help them attract new borrowers, close more loans and grow their portfolio without having to add staff or make disruptive changes. It really is a constant cycle of knowledge and growth. Having the right partner to help you see what’s possible is essential to continuously improving your home loan process and offerings.
Q: How do you think the industry as a whole will approach home equity lending in the future?
Jingst: During a recent NFL football game, there was an ad from a major online lender that focused primarily on home buying and home refitting. However, this ad was all about home equity loans.
I think the big banks will start offering and promoting HE loans again as rates and equity continue to rise. I also think competing fintechs will continue to expand into areas previously held by community lenders, and not build branches. They will focus on meeting borrowers where they spend time and focus on delivering a better experience that meets the ever-changing expectations of more discerning and savvy borrowers.