Consider Adding Home Equity Loans to Your Lending Portfolios

Posted by MeridianLink | December 6, 2021

The materials available in this article are for informational purposes only and not for the purpose of providing legal advice. You should contact your own advisors with questions regarding the content herein. The opinions expressed in this article are the opinions of the individual author and may not reflect the opinions of MeridianLink, Inc.

Banks & Credit Unions Are Well-Positioned to Take Advantage of the Surging Interest in Home Equity Loans 

When the COVID-19 pandemic threw the economy into crisis, many out-of-work and under-employed homeowners sought home equity loans to cover day-to-day expenses.

At the same time, many banks in the U.S. announced they were tightening home equity loan qualification requirements .

Today, financial institutions that offer home equity loans still have stricter requirements for borrower credit scores and the amount of home equity needed to qualify.

That will create opportunity for forward-thinking banks and credit unions as demand for both fixed-rate home equity loans and Home Equity Line of Credit (HELOC) loans is likely to grow for reasons that include rising interest rates and the shortage of homes on the market – especially for those lenders that also can provide a digital lending experience that matches what today’s consumers increasingly demand.

Why HELOC Demand Is Surging

Over the past year or so, home prices have risen sharply and homeowners have accumulated substantial home equity they can use to improve their homes and pay down debt.

Homeowners can use home equity loans for any purpose, such as home improvement, paying for college, or paying off high-interest credit card debt. Banks and credit unions also benefit from home equity loans because after they earn interest and fees on borrower first mortgages, they earn additional interest and fees on home equity debt. If the homeowner doesn't make the payments, the lender can foreclose.

"While people were increasing their debt, they were not spending cash last year," noted Omar Jordan, CEO, and founder of LenderClose, who expounded on the topic in an interview with MortgageOrb published in July. "Community banks and credit unions saw checking and saving account balances increase dramatically. Financial institutions currently maintain record levels of cash on-hand and through home equity loans, they can increase profit margins,” Jordan told the publication. The shortage of real estate inventory also makes this an ideal time for lenders to offer home equity loans, especially those that can offer a more personalized solution than megabanks with “one-size-fits-all policies,” he said.

The next several years are likely to bring a sharp increase in home equity loan and non-conforming loan originations as lenders look to move the cash on their balance sheets and rising  interest rates drive increased consumer demand, he said.

Fintechs Poised to Take Advantage

But to be successful in the home equity market, banks and credit unions will have to pay attention to their new competitors.

That means adopting the speed and consumer-savvy practices of the fintechs, who will also be looking to take advantage of the same opportunity, but with a significant head start on the digital lending and easy-to-use platforms that consumers increasingly expect.

MeridianLink Consumer Lending Webinar

MeridianLink can help banks and credit unions get a running start on home equity lending opportunities with state-of-the-art loan origination software to drive better consumer experiences.

To learn more, join us for our live webinar, Home Equity Open House: Preview the MeridianLink Consumer Modern Experience Module Makeover on Wednesday, January 12, 2021 at 2:00 p.m. ET/11:00 a.m. PT.

This webinar will cover:

  • Status of home equity application for the Modern Experience Upgrade
  • Notable changes in the home equity Modern Experience module
  • Schedule for beta testing and production availability for home equity Modern Experience
  • Demo of the home equity Modern Experience module
  • LIVE audience Q&A

Bonus: Two lucky attendees will win $100 Amazon gift cards!

Register for Webinar

Topics: digital mortgage lending, home equity, digital loan origination

Written by MeridianLink

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