With the inefficient, circa-2004 borrowing processes resident in many banks’ loan departments today, too few lenders are equipped to deal with the rising tide of home equity volumes that will descend like a tsunami on their operations the moment Fed chairman Jerome (What-Are-We-Waiting-For) Powell announces a rate cut.
It’s coming, lenders. The home equity market is currently at a record high of $17.6 trillion, of which two-thirds is available for borrowing. In addition, roughly 3 in 5 homeowners have more than $100,000 in tappable home equity that could be unleashed in the system. Yet many lenders lack an adequate suite of home equity solutions to offer borrowers.
The two primary issues keeping some lenders from the top of their home equity game are 1) ambiguity in the ownership of their home equity functions and 2) a lack of maturity in their lending systems and processes. For many lenders, the process is simply too slow and inefficient.
The following are key areas of focus to help bank leaders succeed in home equity lending:
Home equity is often misaligned with a bank’s strengths and made to operate in areas with inadequate staffing or technology support. In addition, fixed-end home equity and home equity lines of credit (HELOCs) are often inappropriately split or consolidated within the organization.
Home equity can involve both the mortgage and consumer lending lines of business and be impacted by various processes, staffing and/or systems. As a result, institutions can struggle to understand proper ownership of the products and team organization.
Some lenders do a solid job repurposing mortgage lending staff into home equity roles. However, this shift has created some misalignment in staffing expertise and technology utilization between the mortgage and consumer lending lines of business.
We recommend a simple solution:
Most consumer loan origination systems were built for consumer loans, and most mortgage LOS platforms were built to handle first mortgages—but neither were built for home equity. Because of this, inefficient processes and long turn-times plague the entire experience. But designing the home equity process to account for every exception is a recipe for disaster.
There are steps lenders can take to make it all run more smoothly:
For many borrowers, the online application is their first impression and sets the tone for the entire lending experience. The online application should be an intuitive process for the borrower and capture the appropriate level of information to allow for adequate decisioning without spiking abandonment. It should also require the online capture of the necessary documentation to minimize manual efforts for back-office staff and support increased speed of delivery.
An efficient lending process depends on the integration of basic information (credit pulls, ID verification, employment verification, property insurance, flood, appraisals), “order outs” (ideally automated) and a back-end import of data and results.
Too frequently, systems will be “integrated” but require manual steps and/or additional communication/documentation. A fully integrated experience enables users to stay in the LOS with as much automated ordering as possible.
Lenders with a troublesome LOS should consider a separate home equity lending solution with more robust functionality and integrations.
When applied correctly, automated processes drive down expenses, provide lift, reduce turn-times, create scale and efficiency, and improve the borrower experience. Automation should be leveraged in combination with faster property valuations, remote online notary solutions and lights-out integrations with various home equity providers.
Lenders who are not holding their “north star” as closing home equity loans in less than 10 days will eventually become obsolete. While all the items outlined above are certainly not quick wins, lenders operating with these capabilities will be well-positioned to capitalize on the coming home equity wave.
Daryl Jones is a senior director in Cornerstone Advisors’ Retail Lending Practice. Follow him on LinkedIn.