What is EPP? The Equity Protection Program (EPP) is a credit default insurance solution that protects lenders from charge offs while broadening borrower eligibility for unsecured H/I loans and home equity lines of credit (HELOCs).
Put simply, financial institutions recognize that new first mortgage origination opportunities are limited given market conditions and that the flip side is lenders will need inclusive shelf products to capture the anticipated increase in HELOC originations.
We often see that lenders focus on Super Prime credit borrowers when marketing to new prospective HELOC clients. However, data tells us super-prime customers are not heavy utilizers of this type of loan and profitability results are diluted when considering the unused capital expense charges incurred.
Lenders are coming to realize that to successfully grow their portfolios, it requires a change in risk tolerances within the origination strategies. By offering HELOCs to a wider demographic of Prime and Near Prime borrowers, you no longer limit yourself to an inactive fraction of borrowers.
That said, the goal of the program is to safely grow your portfolio by lending to these additional segments that allow for broader fico bands which will increase line utilization and largely reduce unused capital charges leading to increased NII. This can be achieved without adding balance sheet risk.
How can that be accomplished? By implementing a delegated credit default solution like EPP! It enables lenders to hedge against specific credit risks associated with unsecured H/I and HELOC loans.
How Does EPP Work?
Consider how broadening your customer base to prospects with CLTV’s > 80% and Fico Scores < 700 would affect your overall net interest income if risk was not an issue?
This fully insured program is designed as a straightforward, transparent to borrower option for Home Equity loans. By transferring the credit risk, lenders can eliminate credit losses and foreclosure/REO expenses.
With our delegated EPP solution, your current loan origination, processing and collection workflows remain intact. It is designed to work seamlessly within your system.
Conclusion
Improve net interest income margins on your HELOC and unsecured H/I portfolio by utilizing EPP. Learn how your financial institution can benefit from our solutions here.
Questions about risk, compliance or regulations? Ask Us Anything!
