Are Lenders Prepared For Potential Wave of HELOCs?


BLOG VIEW: If your institution provides home equity lines of credit (HELOC)s, now is the time to be proactive, not reactive. Due to the COVID-19 recession and trillions of dollars of federal aid, interest rates are all but certain to increase soon. Add to that the fact that many consumers are going through financial challenges and you have an environment ripe for HELOCs. The challenge for lenders will be to properly prepare for the potential wave of new business.  

A recent Forbes article shared that we are expected to go through three phases of recovery after the pandemic crisis. The first phase is the Protect phase. During this time, we are protecting ourselves with stay-in-shelter orders and extreme social distancing. Many parts of the country have been in complete lockdown to insure the health and safety of citizens. The second phase is the Re-Open phase. This phase will include a gradual lifting of stay-in-shelter orders and stores will begin to slowly re-open. However, social distancing will remain top of mind for most people as we journey through the recovery process. In the Re-Open phase, we will probably continue social distancing. Stores and restaurants will re-open but discourage large crowds. This is the phase where we can truly begin to work toward returning our economy to some sense of normalcy.

How will this affect HELOC lenders? During the first and second phase, the government will continue to artificially suppress interest rates and keep them at low levels. However, once we enter the Re-Open phase, inflation is inevitable and interest rates will increase. The U.S. recently added more than $2 trillion to our national debt when Congress passed the Coronavirus Stimulus Bill, and this will have to be repaid. Inflation is coming and it is just a matter of time before interest rates increase.

This means that refinance and purchase transactions will slow or come to nearly a grinding halt. Consumers will not be inclined to use a refinance to obtain cash out money if it means their monthly payment will increase by hundreds or even thousands of dollars. Instead, consumers will turn to HELOCs. Even though the interest rate will be higher, consumers realize they do not need to reset their entire mortgage at a higher interest rate to obtain cash out, and they certainly do not want the even higher interest rate of credit cards or other unsecured debt.

Lenders can be ready for this potential influx of customers by ensuring that they have a complete lending solution that instantly approves HELOC applications while also performing automated back-end solutions to manage vendors and automate product selections. The platform should easily plug into the current tech stack and designed for high-volume lenders that are looking to streamline their processes from “hello” to “here’s your money.”

With this type of technology in place, lender can expect faster closing times, increased loan capacity and reduced expenses. With so much uncertainty, consumers will be shopping for lenders that can close quickly. In today’s environment, these consumers will be in search of lenders with easy-to-use, online applications so consumers can access the cash they desperately need as soon as possible. If a lender still has a more than 30-day average time to close on a HELOC, this should be a warning bell. Consumers will not wait a long time if another lender down the street is able to close in 10 to 20 days.

Due to these unprecedented times and the almost certain impending increase in interest rates, lenders should put the technology in place now to ensure they can compete in the new environment. It is crucial that lenders not let closing times increase due to an increase in volume. Be proactive and offer the service that today’s consumer will demand in the near future.

Consumers expect the mortgage industry to match the service levels of companies such as Uber, Amazon, Doordash and Netflix. These companies have fed the “I want it now; I need it now” mentality and, whether we like it or not, that same mindset is creeping into every aspect of our lives, including the financial industry, which has historically been timid in its reaction to technical changes.

Lenders that are prepared to deliver that promise will reap the rewards and take back market share that was previously lost to non-bank fintech lenders. The lenders that are ill-prepared and get caught reacting after the wave has begun will struggle to compete.

The right partner can prevent this from becoming a reality and eliminate a lender’s need to struggle to keep up with the fast pace of innovation. 

Tim Smith is the co-founder and chief revenue office of FirstClose, a provider of property and borrower data intelligence and settlement services nationwide. 

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