Home equity lines of credit (HELOCs) were supposed to be having a momentous 2019. All the signs were there. Equity levels were at unprecedented peaks. Appetite for home improvements seemed insatiable.
Here we are, well into Q2. Where are all the HELOC originations?
We reflected on the disappointing results kicking off the year, and two culprits emerged. As Andy Walden at Black Knight puts it, we can frame them as inflow and outflow problems.
The siren song of familiar lending products
From an inflow perspective, new homeowners are simply not showing the interest in HELOCs that market indicators predicted. Note: this is a good reminder that market indicators are not flawless.
The siren song of alternative (and more familiar) lending products is capturing the attention of the newly equity rich. Around two-thirds of these customers consider non-HELOC products when opening new lines of credit – especially younger owners, who consider 2.5 products on average.
Chief among these attention-grabbing alternatives? Credit cards.
Credit card providers are very smart (you may well offer a credit product yourself, so we’ll make sure to be nice). Their marketing is edgy, catchy, and ever-present. They’ve successfully positioned credit cards as the gateway to consumers’ every desire – including a fancy new kitchen or updated plumbing.
Why bother with a HELOC when I’ve already got a credit card in my pocket? I’m pretty sure a HELOC won’t earn me any airline miles.
A growing dissatisfaction with existing providers
Additionally, existing customers are growing dissatisfied with their home equity providers. JD Power noted a significant decrease in overall satisfaction when customers who have had their line of credit open for more than two years.
Why might this be? For one, these longer-term customers may be reaching trigger points at which payments increase. When the years of friendly rates fade into the past, lenders are in the unfortunate position of being the obvious scapegoat.
To make matters worse, longer-term customers are feeling forgotten. As time passes, they become more and more out of the loop. What does their line of credit offer them in these later years? What alternative products are available to them?
In short, they’re lacking information.
An opportunity to do what lenders do best
So where does that leave us? We have a market full of home equity potential, but a group of consumers that are completely missing the boat. This presents a unique opportunity for the folks who have already worked to build a strong relationship with potential HELOC customers: the loan officers that provided them mortgages in the first place.
LO teams should be aiming to provide higher levels of education for their new mortgage customers. Ensure they know what a HELOC is. Warn them of the dangers of overloading credit cards with home-based debt. Alert them to the tax savings HELOCs offer that credit cards don’t.
Consumers look to lenders as trusted resources. Capitalize on this.
In addition, loan officers should be going out of their way to ensure established HELOC customers are not feeling out of the loop. The relationship lender and borrower formed during the initial signing shouldn’t disappear over time. It should continue to grow.
Lenders: continue to be a fountain of knowledge for your new friends.
Loan officers are expert relationship builders. The home equity gap is a perfect opportunity to show off what they’ve got.