You’ve probably seen the numbers on the impending wave of HELOC resets. They’re staggering.
The OCC reports that $30 billion in HELOCs will reach the end of their initial draw period in 2014. That’s just the beginning.
The number zooms to $52 billion in 2015, $62 billion in 2016 and $68 billion in 2017.
In DataQuick’s own National Property Database, we have visibility into more than 4 million HELOCs that will hit their initial reset between 2014 and 2017.
The big numbers certainly can mean big risk, but this unprecedented “event” also presents a great opportunity for lenders and servicers who can get in front of the wave.
The risk is clear. Borrowers hit the end of the interest only payment period, their payments reset to include principal, they lack the means to cover the higher payment, they default in droves and a new crisis is born.
That’s a bit of a doomsday scenario, but it’s not entirely out of the realm of possibility.
Some lenders may simply modify troublesome HELOCs. That’s one solution, but it’s just deferring the problem for a few years.
The more savvy will look for creative, efficient solutions to identify and address the problems now.
Further, reviewing all pending HELOC resets and making fast, consistent and accurate decisions on the most appropriate action will be an administrative challenge for any lender or servicer especially in a time of tighter budgets and greater regulatory scrutiny.
To meet this challenge, many lenders are turning to automated portfolio review solutions.
These solutions identify all junior and senior liens on the property, evaluate borrower performance on each lien and all other trade lines, and deploy client-specific rules to determine the appropriate expiration strategy (i.e., renew, extend, invitation to apply, close).
The evaluation is comprehensive and applied consistently across all loans within the portfolio.
The result is a sophisticated portfolio triage that quickly highlights the specific loans with the greatest risk—the loans where valuable portfolio review teams need to be deployed to ensure the most appropriate resolution. In the world of automated review, all loans are not created equally.
Portfolio review teams aren’t the only ones in the water. Smart marketers have recognized there’s opportunity in the HELOC bulge and are deploying creative initiatives to catch the demand generation wave.
Some lenders view this event as a competitive kill opportunity. They’re leveraging public record property databases to identify borrowers with a HELOC from a specific competitor and directing targeted direct marketing campaigns touting their specific benefits.
Others are applying a bit more precision by focusing only on their existing customer base.
Specifically, they’re matching their general customer database against public record property databases to identify existing customers who have an expiring HELOC with a competitor.
The existing relationship is then used as the anchor for outreach campaigns towards a more receptive prospect.
The HELOC wave can break either way. Lenders and servers who don’t take proactive action may find themselves underwater figuratively and literally. Those who see this as an opportunity and take decisive action are much more likely to ride the wave towards more effective risk management and creative business development.
Randy Wussler is vice president of product management and marketing for San Diego-based DataQuick.