Mark Mackey offers expert insight on questions why, what part digital mortgages play, and how credit unions can leverage their unique industry position in the current evolving market.
1. Many observers believe that home equity lending is finally making a comeback now that higher interest rates have made refinancing less attractive. Is this what you’re seeing and what do you think it will mean for your credit union clients?
The comeback is well underway. In August, ATTOM Data reported that home equity originations were up more than 42% year over year in Q2. Meanwhile, first mortgage originations suffered their sharpest drop since 2014.
The why is simple: U.S. homeowners are sitting on more $27 trillion in equity. The vast majority were able to refinance their first mortgages at historically low rates over the past few years, and now they’re looking for new ways to access portions of that equity without replacing low-coupon first mortgages.
Our parent company, Wolters Kluwer, recently hosted a webinar on home equity that featured Rick Sharga, the head of Market Intelligence at ATTOM Data. “HELOCS,” he said, “are right out of central casting for credit unions.” Sharga also noted that the biggest home equity originators currently are the very large depository banks, but once you get past the top 10, he said, you see a “predominance” of credit union names on the list of HELOC originators.
This not surprising. Credit unions have always been very comfortable with HELOCs and home equity loans. Nonbank mortgage companies were tough competition for credit unions during the refinance boom. But, at least for the moment, they are not a factor in home equity.
2. Why are credit unions well positioned to take the lead in home equity lending?
When it comes to home equity, credit unions have a number of advantages. HELOCs are portfolio loans. Credit unions have balance sheets and are happy to portfolio these products. In contrast, mortgage banks originate to sell into the secondary market, and currently there isn’t a very big one for seconds.
Also, credit unions are set up to service HELOCs and handle draws and other servicing requirements. Credit unions are comfortable with this kind of lending since they are more relationship-driven and closer to their members.
Even if they didn’t originate or refinance their members’ first mortgages, they can meet their members’ future needs when it comes to home equity. And they are aggressively making this point in their marketing campaigns.
3. Are there any headwinds that credit unions should be concerned about as they step up their efforts within the home equity space?
HELOCs tend to be no-cost products for consumers, so credit unions need to be focused on origination costs and use as much automation as possible to protect their margins. Risk, of course, is always a factor. Make a mistake on the amount of equity that’s available or where you are in terms of title position with a second lien, and there is very little chance of recovery in the event of a default.
To compete, credit unions will need to offer a modern customer experience, similar to what leading first mortgage lenders have shown customers they can have. This means offering fast decisions, convenient closings, digital document presentation and eSigning.
Operational efficiency and consistency are also considerations. Why originate first mortgages on one platform and with one set of document providers, but use older core banking systems, or even a paper process, for HELOCs? This is cumbersome, less efficient and doesn’t leverage data.
Finally, credit unions will want to work with vendor partners that can support their compliance rules. Unlike first mortgages, there aren’t standard forms for HELOCs. As a result, decisions on what forms to use will vary from lender to lender. Companies like IDS can develop credit union-specific audits to make sure that internal rules are being followed.
4. Your company has a long history of working with credit union client. How are their needs different than other lenders?
Credit unions have always been a core audience for IDS. Over the past 3 years, we have been proud to be selected by 274 credit unions, including some of the largest, as their preferred provider. Many of our competitors in the document prep space have focused more on independent mortgage banks.
While credit unions, like other lenders, need modern, compliant document solutions, many can’t afford the investment in technology and resources that larger mortgage companies have made. Our system—for first mortgages and HELOCs—offers significant flexibility and customization, much of which can be done in real-time or on the fly, and this appeals to credit unions. No need to call customer support, get a ticket, and wait in the queue to get things done.
Also, our system has always been able to support HELOCs and specialty portfolio lending. Many of our competitors are now scrambling to add these products.
5. What should a credit union be looking for in terms of documents and compliance when it comes to home equity products?
First of all, does the doc tech provider even have a HELOC solution? As I’ve mentioned, not all major document vendors do. We have had ours for more than thirty years.
How flexible is the provider’s offering? We can easily customize our HELOC docs to meet a credit union’s business rules and needs. IDS also offers custom audits to assist with lending compliance, even with tricky, variable documents such as HELOCs.
Finally, if you’re creating digital HELOCs, does your company or your provider have eVaults that can accommodate these assets and provide transparency across all of your real estate assets? IDS is seamlessly integrated with Wolters Kluwer’s eVault platform, including its new OmniVault which is able to accommodate first mortgage eNotes and digital HELOCs.