Learn about a proven risk transfer insurance product that provides broader borrower eligibility to confidently grow your HELOC and unsecured home improvement loan portfolios in a rising rate environment.
Home equity lenders should expect the revival to continue in 2023 due in part to strong consumer spending, and expectations that 30 year mortgage rates will remain above 5%.
There is also new data suggesting that personal savings rates now stand at a 13-year low due to declining amounts of disposable income for consumers while credit card balances have grown more than 15% from year-ago levels.
That could mean consumers who feel financially needy may decide to tap into home equity, further increasing usage.
In anticipation of the increased demand, this blog describes how lenders are utilizing a proven risk transfer product that allows for broader HELOC eligibility including options for digital delivery and automated decisioning to enhance the customer experience.
The “Buy Box” ALIGNING RISK AND REWARD
Lenders understand the risks associated with home equity lending, especially in a rising rate environment.
Most, if not all, lenders utilize risk-based pricing and risk tolerance within their origination strategies and policies to help reduce their overall exposure to higher delinquencies and losses.
Lenders strive to minimize high delinquency rates, combined with achieving optimal balance and utilization percentages.
However, most lenders focus their origination strategies on super-prime, high-credit customers, which results in suboptimal portfolio utilization. Typically, super-prime credit customers tend to have the lowest utilization levels in the portfolio.
A winning strategy should include a more balanced inclusive risk segmentation, with options to prudently broaden the “Buy Box” related to CLTV’s > 80% and Fico Scores < 700.
Lenders accomplish this by hedging specific tranches of HELOC and unsecured H/I credit risk against default to align with the overall enterprise risk appetite.
Ultimately, this will also attract more diverse customers with higher balance and utilization segments that ultimately help achieve the expected reward.
Shelf Products Attract HIGH-VALUE Customers
Successful lenders in 2023 will leverage the "buy box" to create even higher-performing portfolios by focusing on a customer’s holistic relationship that takes all variables into account, including:
- risk balancing,
- utilization expectancy, and
- net interest margin
This is particularly pertinent because most home equity customers already have an existing relationship with the lender.
Having shelf products that include more diverse eligibility requirements and additional product features (10 year I.O. draw periods, fixed-rate partitions, piggyback purchase $, splitting jumbos and end-of-draw options) will not only stand to strengthen existing relationships but also attract new high-value customers who check all the boxes and can help the entire enterprise achieve higher lifetime value, versus just certain segments.
Automation & Cycle Times
Although cycle times for HELOCs have retreated from early 2022 highs, total cycle times still remain close to 60 days for many lenders as they struggle to handle their current volumes.
As a result, and in anticipation of 2023 volume levels, more lenders are opting for advanced, white-labeled solutions that can be delivered right thru the lenders website for immediate access by diverse customers.
The solution can include automated decisioning for HELOCs and the secure delivery of application data, AVM, credit report, VOA/VOI/VOE & title docs. This automation improves efficiencies around speed for all applicants in the pipeline and is helpful in taking shoppers off the street.
Automation also supports product eligibility versatility with the ability to insure specific tranches of risk against default while executing with loan-level precision to improve the customer experience.
The Solution: Credit Default Insurance
The Equity Protection Program (EPP) is a fully insured loan program that is transparent to the customer and designed to assist lenders in generating more Home Equity loans.
EPP allows for expanded underwriting guidelines and protects a lender’s home equity portfolio against credit losses due to borrower default.
Implementation of the program is straightforward, with delegated underwriting, risk-based pricing, and adherence to your existing loan origination, processing, and collection workflows.
This proven risk transfer program is currently being used at hundreds of banks and credit unions nationwide to aid in protecting balance sheets and replacing lost revenues.
To learn more, contact us any time and consider attending this complimentary webinar to learn how your financial institution can also use the insured loan program to grow & maximize HELOC lending in 2023.