Lenders, buyers and anyone even tangentially tied to the mortgage and real estate industry have been on a wild ride over these past several years. What may have been driving market factors during the pandemic-plagued years has now taken more of a back seat. With shifting rates, volumes and opportunities, homebuyers and lenders alike have had to be quite nimble to ride out all the twists and turns.
The refinance boom that made so much noise in 2020 and 2021 has since been reduced to a quiet murmur. On the flip side, just as we witnessed a sharp drop in refinancing in the second quarter of 2022, we’ve seen a steady uptick in home equity activity. With low inventory and soaring housing prices, many homeowners have enjoyed watching the value of their homes climb from month to month. According to ATTOM’s most recent Home Equity and Underwater Report, nearly half (48.5%) of all mortgaged residential properties in the U.S. were considered equity-rich in the third quarter of 2022.
It's no surprise that home equity (HE) loans and home equity lines of credit (HELOC) are now some of the more attractive products on the market, and lenders need to be prepared for the influx. During the pandemic, some banks and other institutions suspended their HELOC programs as a way to minimize risk. However, now that the market has bounced back and equity is available, there are some opportunities to capitalize on its revival. Before that can happen, it may be necessary for lenders to take a fresh look at products, processes and partners, especially for those institutions just easing back into a fast-paced HE market. Here are some points to consider.
1. Ask the right questions.
With the increase of borrowers looking to tap into the equity in their properties, lenders' former approaches may not be scalable enough to keep up with current demand. Here are a few questions every lender should ask themselves first.
- In what areas can we improve our speed or transparency?
- Are we working with the right partner(s) to achieve our goals?
- Do we have the technology to close loans as quickly as we’d like?
Taking an inventory of these factors and exploring solutions will lead to a more robust strategy to better serve customers in a high-demand environment, both now and in the future.
2. Implement technology.
Two of the key benefits of implementing technology, which are speed and transparency, are factors that consumers have come to expect from their lenders. One particular solution that has greatly benefited the refinance market is now paying dividends for lenders in the home equity space as well.
Instant title (IT) technology solves both the speed and transparency factor, as it can be leveraged to accelerate the title report and subsequent underwriting process. (Full disclosure: My company offers this service, as do others.) By quickly scanning parcel information, additional data points and other repositories, IT provides lenders with an instant title decision. Some providers can turn it around in just a few hours. That means less waiting around for this important piece of the puzzle.
An instant commitment gives borrowers a more precise closing timeline and sets expectations from the beginning of the transaction. With IT, traditional closing timeframes can be greatly reduced; my own company has seen HE lenders get the normal 35- to 40-day average down to 10 days or less with products like instant title. This benefits both the lender and borrower, as time savings often equals cost savings.
Home equity lenders need to be cost-conscious due to smaller margins within this product category. Traditionally, these transactions are for lower loan amounts than one would encounter on a purchase or refinance, so implementing innovative products that drive efficiency and increase borrower satisfaction can go a long way.
3. Pick the right partner.
While a growing number of title companies offer instant title solutions, it’s important to use wisdom when choosing a partner. It’s not about selecting the provider with the flashiest marketing materials. Instead, focus on partnering with one that offers quality, coverage, speed and experience.
It’s pertinent for lenders to understand the quality of the data that’s being used to produce the title commitments. Potential partners should be able to articulate the depth of their data repository, their scope of coverage and their average turn times. The word “instant” can mean different things to different providers. That’s important to know upfront.
Additionally, choose a partner that is experienced in the space. With such a tumultuous market over the past three years, some providers haven’t been able to withstand the storm. Lenders should consider investing in a company that can weather the ebbs and flows and still provide exceptional service.
Conclusion
In the current market, where lenders are hyper-focused on attracting, nurturing and retaining loyal borrowers, being able to offer industry-leading, tech-enabled solutions is paramount. Technology is a primary differentiator, not only in the home equity space but across the entire mortgage spectrum. And as the industry continues to evolve, lenders that can scale while still offering speed, transparency and an improved borrower experience will be positioned to thrive in various market conditions.
