Home equity in the United States has reached an all-time high. According to NRMLA, housing wealth grew to $6.2 trillion in 2017. However, some homeowners are more reluctant than ever to tap into their wealth as the costs of financing a HELOC have risen to 5.83% in 2018. Plus, refinancing can be harder than ever before and homeowners are wary of housing troubles caused by the crisis in the early 2000s. But, a recent study on HELOC’s by Transunion predicts that, “The number of consumers opening HELOCs may double during the next five years.” So, even though rates are up and homeowners may be wary, lenders can use home equity loans to deepen customer relationships. Here's how.
Focusing on your customers
Customer needs have changed in the past few years, and it's important to empower them with your offers. Businesses are personalizing their offers, and customers expect the same from lenders. That's why it's important that you, as a lender, help them meet personal goals in order to expand your relationship with them.
Since we are seeing a rise in the cost of HELOCs and a change in consumer behavior, you can help your customers by:
- Enabling them to invest into their existing homes, instead of acquiring new real estate
- Helping them pay for education
- Showing them that debt consolidation is very practical through HELOC
- Informing them on the benefits of HELOCs (e.g. tax deductibility, lower interest rates than with credit cards, etc. )
In return, you can expect more loyalty from your customers by helping them achieve their personal goals, and invest into their properties (in case of home add-ons). However, be careful about customer reloading, and consider investing in equity default protection.
Expanding LTV requirements
As your loan officers are developing customer-centric solutions, they will likely face obstacles such as LTV requirements. Regardless of credit standing, loan-to-value (LTV) criteria are still a prerequisite for home equity loans. No matter how much you want to help your customers, LTVs can pose an obstacle to both parties’ goals. However, if a borrower isn’t meeting the LTV criteria, you don’t necessarily have to deny their HELOC request. There are options like equity default protection which can help you tap into unused home equity and use higher LTV ratios.
Equity default protection eliminates risk caused by raising LTV thresholds and allowing customers to get equity loans bigger than the standard 80-90% LTV. Some can even be customized to reach 100% LTV thresholds. This helps you extend your reach to other customers who previously have not even considered getting a HELOC, enabling you to offer them a better solution for refinancing their debt, investing into higher education, or raising the value of their property.
By raising LTV thresholds with the help of solutions that mitigate risks and exposure of your financial institution, you are also improving competitiveness.
Deepen customer relationships
Customizing your offer and focusing on your customers is the future of lending. Flexibility is becoming the biggest priority for most homeowners. By being a lending institution that’s on their side and supports their goals, you gain their trust and improve your reach. And finally, you become their partner in what matters most: the future.