Home Equity Beck­ons, But Few Ready to Em­brace It

National Mortgage News - - Origination - By laura alix

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.

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