PERSON OF THE WEEK: The rapid pace of home price appreciation over the last decade has left most homeowners sitting in an advantageous position in terms of home equity.
And, many of these homeowners are likely to want to use that equity to meet future needs: Even with rising interest rates, homeowners continue to need cash to consolidate debt, make home improvements, pay for college, or take a family vacation.
Whatever the funds are used for, homeowners need to know what the best options are for taping into their home equity. Until recently, cash-out refinances were the preferred choice for most homeowners, given the dual benefit of lowering their overall mortgage rate while simultaneously taking out cash.
Now that mortgage rates have increased, homeowners are leveraging home-equity-lines-of-credit (HELOCs), which allow borrowers to preserve their 3% mortgage rate and only pay higher interest on the funds borrowed against their home equity.
With the surge in home equity demand, mortgage lenders must focus on how to best develop or enhance their HELOC offerings in order to differentiate themselves from the competition. The technologies they use will be a key factor. To learn more, MortgageOrb recently interviewed Jeremy McCarty, founder and CEO of Valligent, an appraisal management company that was recently acquired by Veros.
Q: How can lenders differentiate themselves in the home equity market?
McCarty: Home equity lending is known for speed related to closing loans and accessing funds, mostly because credit underwriting takes less time to complete compared to a first mortgage. With that in mind, the property valuation component must align to ensure a quick closing time – without sacrificing valuation accuracy. Providing an equity loan commitment within a few hours can be a game changer for the lender’s competitive position, especially if it takes others several days or even weeks to deliver an underwriting and credit limit decision. The bottom line is, the faster a lender can move, the quicker borrowers can access their funds, and the happier they will be with their experience. Not to mention, the lender is simultaneously closing more loans which helps their bottom line.
Q: What is currently slowing lenders down?
McCarty: Historically, HELOC lenders used automated valuation models (AVMs) or exterior-only drive-by property inspections during the underwriting process. While these tools served a purpose, only looking at the home exterior may not result in the most accurate home value, especially if extensive home improvements or updates were made on the inside. In other words, the HELOC lender is risking a negative customer experience if the home valuation does not reflect the actual value of the home. In this case, valuation accuracy comes at the expense of underwriting speed, which will result in a lower-than-expected borrower credit line.
Q: How can technology help streamline the valuation process and deliver more accurate decisions?
McCarty: Valuation accuracy does not need to come at the expense of underwriting speed, however. Leveraging new technology, more specifically the virtual inspection, home valuations can incorporate all the interior and exterior amenities without ever stepping inside the house. Compared to the traditional HELOC underwriting process, the virtual inspection creates a far better experience for the borrower produces cost savings and efficiencies for the lender, and ultimately provides both the borrower and lender the most accurate home value.
With a virtual inspection, the homeowner takes an active role in the data collection process used in underwriting. Specifically, a trained virtual inspector analyst connects to the borrower through a streaming video call to conduct a brief but thorough home inspection. This inspection includes the home’s interior footprint, exterior view, and all amenities, resulting in a complete picture of the property. The inspection usually takes just 15-20 minutes. Not only do homeowners appreciate being able to show off their homes, they know their involvement assures that every aspect of their home will be factored into its valuation – not just what can be seen from the street.
Q: How quickly can an underwriting decision be made using a virtual inspection?
McCarty: Literally, within minutes of the lender ordering the evaluation with a virtual inspection, the homeowner is contacted, and if available, the inspection is conducted on the spot. If the homeowner is unavailable, they can schedule a convenient time for the inspection to take place. Collecting property data in a virtual format is a much faster, lower cost and more thorough way to arrive at a home valuation while maintaining accuracy. The valuation analyst can then provide a strongly supported valuation report, using all the pertinent home information, within a couple hours after inspection.
The virtual inspection sets a new standard in home equity lending, where the time for loan approval can be measured in hours, not days or weeks. Additionally, homeowner involvement in the inspection strengthens their commitment to the loan and creates a superior borrower experience – setting the lender apart in the highly-competitive equity lending landscape.