The news surrounding mortgage applications has been largely in-flux over the past few months. One week applications are reportedly up, and the next week applications are reportedly down. The overall sentiment, however, is purchase optimism that purchase lending will remain strong in 2016. Keep in mind, though, that running multiple strategies to maintain momentum is always a good idea. Perhaps the greatest additional strategy may be the untapped home equity market.
Why home equity? As home values continue to rise, homeowners are beginning to look at their recently purchased homes as a true investment opportunity, spending more money than years prior for home renovations. In fact, home improvements are projected to increase by 4% in 2016, according to Fitch Ratings, and home equities increased nearly 15 percent last year alone, according to Accenture. Americans have not tapped into the equity in their homes as they did prior to the crash, and they may not in the years to come, though at some good level this type of lending does represent opportunity. Time to dust off your home equity go-to-market strategies and maybe even introduce a few new ones as well. Read on to learn the building blocks to a successful home equity strategy.
First and foremost, it’s essential to formulate a plan on how to talk to potential borrowers about home equity loans. Most don’t go into their local bank asking for a home equity loan – let alone know what a home equity loan is. In fact, according to a recent Accenture survey of more than 6000 consumers, only 41% know they can use home equity loans to refinance debt. Instead, they go in needing a way to pay for their child’s college tuition or any number of major life events or debts. By marketing home equities as a solution to these life events – instead of marketing the products themselves, you are much more likely to draw in potential borrowers. Why? Solving for consumer pain points makes it relatable. Be relatable, and expect to see an uptick in inquiries.
Also, don’t forget to be more targeted in your marketing efforts. Your technology solutions are a hidden gold mine when it comes to sparking new business with existing customers. Sometimes all it takes is someone to sift through the system in order to unbury hidden gold. You know which of your customers are in a financial position to potentially benefit from such a loan. When they bought their home and knowing what home values in that area are currently at should open the doors to a targeted list of customers that may want to consider taking out a home equity loan. Next step: contact those individuals, tying it back to their potential pain points.
The communication process with borrowers doesn’t end with marketing, however. Next up: education. After you get consumers interested in ways to pay for those major life events, they may still be hesitant to consider these types of loans. By taking the time to educate your customers, you will most certainly gain their trust. Talk to them about the pros and cons of each home equity product you might offer. Speak, most importantly, to the benefits: Little to no closing costs will certainly be enticing. This, coupled with your upfront marketing efforts, should result in an increase in business.
Now that you’ve learned ways to generate more home equity customers, are you prepared to handle the potential uptick to this line of your business? The ability to support home equity loans within your existing loan origination technology platform is essential. Why? Three main reasons.
Compliance. The CFPB is taking steps to consolidate all real estate transactions under common regulation. As we all know, TRID was born from the need to educate and empower borrowers on their loans. While first and second loans were the immediate starting point, be prepared for regulations to hit open-ended loans, like home equities, as well. Your loan origination technology today should be TRID-compliant and capable of easily tackling future regulations as well. By originating home equities in this system as opposed to your consumer-focused technology, you will be able to focus on your business, letting your technology partner focus on the regulations and system updates.
Borrower satisfaction. Home equity loans are a very unique product – much different than a car loan or a first mortgage. By ensuring your technology is capable of originating mortgage products of all types – including home equities – while allowing workflow and rules custom to your business needs, you can guarantee your customers a speedier, more seamless experience. In today’s society of immediate gratification, the ability to serve your customers in such a manner will make you competitive in an already competitive and highly saturated marketplace. Another distinguishing factor? Having your products and rates posted to your borrower-facing website is no longer optional. In fact, Accenture found that 34% of borrowers in the US have completed an application digitally and 38% use the web to rate shop.
Consistency. For many years, you’ve heard mention of turning the mortgage origination process – whether firsts, seconds or home equities – into a manufacturing process. In other words, create consistent, repeatable processes to meet investor and regulatory demands as well as eliminate the risk of human error. Technology is the key to unlocking this manufacturing of mortgages. Ultimately, you will increase efficiency and utilize the same operations throughout your business regardless of the type of mortgage product. It’s time to think of your loan origination technology as a one-stop-shop.
As an industry, we have been riding the wave of positive momentum for the past several years: from the refinance boom into the record-low interest rate landscape and now into the rise of home equities. The ability to stay flexible in this transformational time by adding home equity lending to your already strong first mortgage originations will allow you to stay ahead of the competition. Putting the right sales approach in place is the first step. This will surely grow your front-end pipeline. Keep in mind, though, that having a robust pipeline without the proper tools to follow through will only create inefficiency. In order to really stay ahead of the competition, be sure you have the right back-end tools, too. The right technology solution should not only drive compliance and consistency, but also efficiency and customer satisfaction.
Now is the best time to solve for your current and future lending needs. Take advantage of these cross-sell opportunities, and follow through by delivering the loan experience your borrowers demand through efficiency, education, and compliance.
About The Author
Nizar Hashlamon is EVP Client Relations at Mortgage Cadence and is responsible for leading the company’s Client Relations team. Nizar has more than 19 years of experience within the mortgage lending industry with extensive knowledge in mortgage loan productions, servicing and secondary marketing. Prior to joining Mortgage Cadence, Nizar was responsible for the Secondary Marketing operations for the World Bank Credit Union in Washington DC. He has wide-ranging experience within the credit union industry and currently serves on the Credit Union Alternative Liquidity Taskforce as well as the Fannie Mae Credit Union Advisory Council and the Charlie Mac Advisory Board.