Ellen Rose is a Managing Director with Treliant. She is a seasoned financial services professional with executive experience in all facets of commercial and residential mortgage banking. Ellen has over 35 years of industry experience in directing originations, secondary marketing, servicing, support, and vendor activities. With a focus on compliance,…
- Source: nationalmortgagenews.com
Treliant’s Regulatory Compliance and Risk Management (RCRM) professionals know mortgage, residential and commercial, originations and servicing, closed-end and open-end. If you are thinking about offering any new products, including home equity loans or lines of credit, you need to ensure that you have processes and systems to support the new products for operational efficiency and regulatory compliance. Treliant can help.
The hot housing market over the last few years has increased homeowners’ equity. With higher interest rates, homeowners looking to tap into this equity are no longer opting for a cash-out refinance but are turning to home equity loans or lines of credit. On August 22, 2022, Brad Finkelstein from National Mortgage News published an insightful article highlighting 6 questions that mortgage lenders must answer before offering home equity products. According to Finkelstein, “tappable home equity reached a record high in the second quarter at $11.5 trillion, up by $500 billion from the first quarter and by $2.3 trillion over the second quarter of 2021, Black Knight said. The average homeowner had $216,900 in tappable equity, up $9,700 (5%) over the prior quarter and $43,400 (25%) from the same time last year.”
Finkelstein suggests the following questions be considered before starting a home equity lending program:
- Which products to offer: closed or open-end or both?
Chris Boyle, president of home lending at fintech Roostify suggests lenders “look at the demographic of the consumers they’re aiming to serve.” And further, “doing a comparison of the economic terms for the consumer.”
- Which segment to serve?
Steve Ferringer, executive vice president, enterprise business development, at Incenter offers “do we want to be just a one size fits all type of shop…or do we come at it with a flexible type of lending process that would allow us to distinguish between key markets like a general audience, a private wealth sector, or even based on the value of the properties that we’re dealing with?”
- Is your organization properly set up for it?
Both Boyle and Ferringer agree that lenders need to make the process easy for their customer by having a unified experience and leveraging the right technology.
- What is your loan exit strategy?
Holding loans in your portfolio or selling them in the secondary market “can have some major ramifications on how aggressive you get with innovative process things that are available with some of the technology” available on the first mortgage side, said Ferringer.
- Is your underwriting responsible?
Ferringer recalls the past mistakes made with home equity products that created “an expensive cost to their balance sheet, as values dropped; plus in many cases the line went unutilized.” He further offered that “now you have [verification] tools you can access fast and actually at a discount from the cost that were the alternatives back in those times.”
- Is this the right opportunity for your business model?
“I think there’s multiple reasons why each of the products can have a place in play,” Ferringer said. “And that’s been consistent with our conversations with the C-suite of the various lending institutions.” He concludes that for “the serious nonbank participants, my prediction would be that we will see more of the traditional second mortgage lending as their preferred product of expertise.”