Home Equity Lines of Credit (HELOC) were prevalent in the 2000s – people took loans against their homes to fund new cars, college education and even a second home.
During the recession, HELOCs seemed to disappear, but they are now making a return to the market. Home values are rising now, surging with the economy. In the first quarter of 2022, homeowner equity went up by 7% or $380 billion, as per the Mortgage Monitor Report by Black Knight. It’s the single largest increase in any quarter since the company monitored equity in 2005.
As homes are flush with equity, there are a lot of increased applications for HELOCs. For homeowners, it’s reassuring to know that there’s a potential for a potful of cash under your roof. HELOCs are a revolving source of funds, similar to a credit card, wherein banks and lenders offer different ways to access the funds over time. However, it’s essential to have the right plan to pursue HELOC and use it efficiently.
What Led to the Rise of HELOCs?
The origination volumes are going down in the USA. According to ESR Group’s single-family mortgage origination volume, it will go down from $3 trillion to $ 2.8 trillion in 2022 and from $2.7 trillion to $2.4 trillion in 2023.
The higher interest rates are also reducing borrowers’ appetite for refinancing. This will decline from 58% in 2021 to 32% in 2022, representing $889 billion and $558 billion, respectively.
New home purchases will also decline in the challenging landscape and go from $1.93 trillion in 2022 to $ 1.85 trillion in 2023. Refinance originations will also drop 62% in 2022, up to $860 billion.
While there’s a decline in origination volumes and refinancing, property prices have appreciated, leading to the rise of equity. As a result, lenders are now promoting HELOCs and HELOANs. They are secured by the home’s equity and are lauded for their ease and flexibility. For example, with HELOC, borrowers can tap up to 80% of their home’s value.
Re-emergence of HELOCs and HELOANs for Lenders
Lenders struggling with originations find HELOCs an excellent way to tap into a new market and get more potential customers. Whether it is banks, financial institutions, or big or small lenders, Home Equity (HE) and HELOCs offer an opportunity to keep your business going. You can offset your business risk by including HELOC loans and other servicing solutions for mortgages.
Since HELOCs have no closing cost or application fee, there’s a higher chance of customers choosing these loans. In addition, with the different term lengths available, low-interest rates, and no annual fee, customers are now turning to HELOANs and HELOCs for home improvements, debt reduction, or any expenses. As a result, lenders get an opportunity to scale their businesses.
Tips for Lenders to Streamline the Processing of HELOC & HELOANs
If you’re a lender or a mortgage provider and are contemplating adding HELOC to your services, here are a few tips to streamline the process:
- Consider an online application to save the time of your resources and your customers.
- Automate the lending process with APIs.
- Eliminate the friction in the lending process with a customizable and simple, user-friendly interface.
- Consider non-traditional credit history and customize the fixed terms.
- Offer the option of in-person help but promote digital applications.
- Add an online prequalification analysis to filter your customers.
- Understand your customers to stand out from your competitors with the latest technologies and innovations.
Although HELOCs are easier to process than a new mortgage, they still require basic processing and data management. If your organization isn’t equipped to handle the workload or needs a support system to manage the processing, PrivoCorp can help. We reduce the costs involved in HELOC and HELOANs processing and increase efficiencies for lenders.
We understand that lenders need to handle a lot of incoming communication from borrowers. Therefore, choosing a robust technology platform and allocating the details to relevant teams as per the customers’ information is imperative. PrivoCorp has a flexible engagement model to help you lower your fixed costs for HELOCs and HELOANs and simplify the processing even further. As a result, you can commit faster and smarter loans to your customers with PrivoCorp by your side.
If you’re ready to scale your mortgage business and embrace the growth of HELOC, talk to our experts today.