Home Equity Beckons, But Few Ready to Embrace It
there has been a hint of optimism for home equity lending among bankers this earnings season, but attitudes remain mixed a decade after the housing market crash began, and the supportive comments made by some executives still fall far short of ringing endorsements.
Home equity lines of credit provided a lift to the consumer portfolio at the $15.1 billion-asset Old National Bancorp in Indiana in the third quarter, growing at an 8% annual pace, Chief Operating Officer James Sandgren said during a recent third-quarter earnings call. Meanwhile, home equity loans rose 4.3% at the $9.9 billion-asset WesBanco in West Virginia, which expanded its sales team in Kentucky and southern Indiana in the first half of the year and considers home equity lending one of its “highest-opportunity product areas,” CEO Todd Clossin said on an earnings call.
Some regional banks sounded upbeat, too. Home equity loan originations rose 6% at Fifth Third Bancorp in Cincinnati last quarter. And the head of Citizens Financial Group Providence, R.I., says he is bullish on home equity lines and that the bank had invested in data capabilities to promote their growth.
Yet a number of other banks — including M&T Bank, SunTrust Banks, Regions Financial and People’s United Financial — said their home equity businesses had fallen and added little about their future, according to transcripts of third-quarter earnings calls.
Industry observers say bankers have to take the long view. HELOCs especially are poised to grow now that home values have been rising for a number of years during the economic recovery, they say.
“If you think about the consumer credit portfolio, it’s for so many years been sitting idle. The only thing that’s really been growing is auto loans,” said Christine Pratt, a senior analyst with Aite Group. “You have a consumer sentiment that is very positive about spending and borrowing right now, and you have housing prices rising.”
Last month the credit bureau TransUnion said it anticipates 11.4 more Americans will take out home equity lines of credit between 2017 and 2022, more than double the 5.4 million Americans who took out home equity lines between 2011 and 2016.
TransUnion currently projects 1.4 million for 2017, representing a well of untapped opportunity. It makes sense, then, that at least some banks are taking another look at the business.
“Since 2009, there’s really been a supply shortage. A lot of lenders got out of the HELOC business or curtailed that activity there,” said Joe Mellman, TransUnion’s mortgage business line leader. “We’re already starting to see more and more lenders are coming back into the market or scaling up their operations.”
Citizens, for instance, has invested heavily in data analytics to boost its consumer portfolio. Chairman and CEO Bruce Van Saun specifically called out home equity lines as an area where the bank is making some progress.
Citizens uses data, both internally and externally sourced, to sniff out customers who might be eligible for a HELOC and targets them specifically with direct mail and digital campaigns, Van Saun said in an interview. Secondly, and perhaps more critically, the bank can preapprove some of those customers and speed up the origination process, he said.
“In some cases we can say, you’ve been preapproved for a line of this size, and we need you to come into a branch nearby you, or you can do it digitally if you’re out of reach, but we can accelerate the process from origination to fulfillment in closing of the loan,” Van Saun said.
Depending on a customer’s circumstances, Citizens can move them through the process in seven to 21 days, Van Saun said. He did not provide specific numbers to illustrate Citizens’ results so far but said the bank is deploying its data analytics capabilities into unsecured personal lending as well.
Speeding up the origination process will be critical to competing in this space. Mellman predicted that traditional lenders would look to innovations in the fintech space to expedite HELOC originations.
Fintechs could look at HELOC lending themselves if consumers begin to turn to banks to tap the equity in their homes for cash rather than turning to the unsecured personal lenders that proliferated on the internet during the downturn in HELOC lending, Mellman said. After all, home equity lines have some advantages for consumers over personal loans: The interest payments are tax deductible, the interest rates are lower, and the lines are larger.
To be sure, an overall HELOC bump is likely still a few years away. A number of bankers mentioned in conference calls this quarter that their business was flat or down on a year-over-year basis.
John Barnes, President and CEO of People’s United Financial in Connecticut, even went so far as to say, “We’ve been seeing declines in home equity like everyone else.”
Pratt issued a note of caution to lenders working to speed up the HELOC origination process. As the speed to closing increases, so does the risk of fraud — particularly fraud perpetrated by family members who have the same name as the homeowner.
“Even though you have the analytics, you still have to make sure that the person who’s getting the loan and the person who’s using the checks or the debit card on the account actually owns the house,” she said.