Seasoned mortgage industry professionals know that in a red-hot refinance market fueled by low interest rates, home equity lending will take a back seat — and it has. Inside Mortgage Finance reported that originations of home equity lines of credit (HELOCs) and closed-end second mortgages declined by 13% between fourth-quarter 2020 and first-quarter 2021, corresponding with a period when interest rates hit historic lows.
Mortgage originators also know that the perfect catalyst for renewed consumer demand in home equity lending products lies ahead. Interest rates are slowly creeping up and the refi market is winding down. With consumer confidence rebounding from pandemic-era lows and a record-breaking $8.1 trillion in available home equity burning a hole in their pockets, many U.S. homeowners will be eager to put their equity to work — from making home improvements to consolidating high-interest debts.
The Mortgage Bankers Association’s 2020 Home Equity Lending Study forecast that HELOC originations would increase by 9% year over year in 2021 while originations of closed-end home equity loans would rise by 11%. A renewed investor appetite for second-lien loans is further indication that home equity lending will rebound.
The pendulum is swinging to a purchase-loan market. To maintain a hold on gains made since the onset of COVID-19 — and grow in the years to come — lenders and originators will need to develop an action plan for succeeding in a higher-rate environment. Home equity loans are an excellent vehicle for serving consumers once rates begin to rise as they allow homeowners to access equity in a secure manner even when the growth of property values eventually subsides.
How do you prepare your organization for a return to home equity lending? The key lies in a double-pronged strategy of fostering a culture of consultative service and strategically leveraging your technology stack. As a bonus, these strategies will not only facilitate a shift to home equity lending, but when applied broadly, they will fuel your success in a purchase-driven market.
Advice, not price
Differentiating yourself on price alone is not conducive to developing strong client relationships, which in turn produce the repeat and referral business that a purchase market demands. What’s more, making unnecessary price exceptions cuts into your bottom line.
To ensure a successful shift to home equity lending, it is key for each consumer who engages with your mortgage company to be supported by an empathetic, consultative lending professional. The sales team representing your brand must be able to meet a minimum common denominator of service that rises above the level of order taker. And it all begins with a conversation.
Review your onboarding materials and ensure that staff members receive education on every single loan product they are empowered to sell.
When a client asks for a debt-consolidation loan or a cash-out refinance, put aside their direct request for a moment and ask them why. What are they trying to accomplish? Many consumers are unaware that there may be another option (such as downpayment assistance, mortgage insurance or a rehabilitation loan) that can be strategically leveraged to better meet their unique needs.
For instance, even in the current market, a cash-out refi may not be the best option for a client who does not have an immediate need to tap into their equity but wants the security of knowing they can access funds when needed. In this scenario, a HELOC may be the prudent choice because the product ensures future access to equity even if property values decline or parameters for cash-out refinances tighten significantly when it comes time for the borrower to access the money. When educating your clients, make them aware of all options available to them now, any options that may be available to them down the line, and how you can help them cross that bridge when the time is right.
Holistic culture
Ensuring that your team can offer consultative service that keeps borrowers coming back for life begins with a top-down cultural edict that no qualified borrower should ever be left to navigate a mortgage decision without your advice. When borrowers walk away from an originator who is viewed as lacking knowledge or interest in helping them attain their financial goals, their business is lost, as is the opportunity to forge client trust and loyalty that can yield repeat and referral business.
Proactive leadership provides the direction and education that lending teams need to elevate the client-service and purchase-market experiences at your company. Review your onboarding materials and ensure that staff members receive education on every single loan product they are empowered to sell. Beyond the general qualifications, mock up common borrower scenarios for each type of loan so that your sales team can recognize when these products may be a good option.
After an onslaught of refinances that has lasted for more than a year, now is the time to provide your team with a refresher on home equity loans. While you are at it, take the opportunity to bring your team up to speed on all lending strategies, especially for lesser-used mortgage products.
Too many veterans, self-employed borrowers, student-debt holders and prospective buyers with competitive market bids lose the homes they seek due to of a lack of tailored mortgage advice. Chances are you curated a diverse menu of loan options to meet a range of borrower needs, but unless your sales team is equipped to calculate, compare and present these products in a Compliant manner, they will not get mentioned to clients.
Technology’s role
Luckily, in today’s flourishing digital mortgage technology ecosystem, there are a number of ways to set yourself up for success with home equity lending. Your customer relationship management and marketing automation platforms are not only for clients. They are an avenue to deliver messages that engage staff.
Start a drip campaign to showcase and compare home equity lending products with other loan programs. Recognize a sales team member who went above and beyond for a client. In an inspirational, companywide email, tell the story of how they helped a borrower achieve their financial goals. Notify sales staff whenever there is a new lending product or technology integration to leverage. Send out a regular roundup of continuing education opportunities (such as webinars or coursework) that your company recommends or is willing to subsidize.
There are several mortgage education providers that offer live and on-demand online training on topics ranging from the Nationwide Mortgage Licensing System to deep dives into state and federal compliance regulations. For a more comprehensive solution, look for business partners that offer a learning management system, which can help you better engage and collaborate with your team. This ensures that every option you offer can be discussed and presented in compliant fashion across the markets being served. For home equity lending, automated valuation models are easily used to instantly assess home values, thereby streamlining the introduction of HELOCs even further.
Starting a conversation with a client about all of their mortgage options is simple and straightforward when beginning with an equity-options analysis. At the end of the day, homeowners want to put their equity to work. Having a sales team that understands (and can articulate) how your financial products are able to advance a consumer’s financial goals helps them to commit more quickly and confidently. ●
