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The HELOC Reset Wave: Sink or Swim

APR 15, 2014 12:18pm ET
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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.

Comments (3)
Why don't you do a little research and tell us what that means in average payment(s) and total aggregate amount to the economy. 30 billion in of itself means absolutely nothing.
Posted by DON M | Tuesday, April 15 2014 at 5:28PM ET
HELOC's are bank products, typically. That means faster reaction times and opportunity for quick solutions. I seriously doubt a 'new crisis' is being born here. We've also seen housing prices rise which keeps everyone above water here.
Posted by Stephen R | Monday, May 12 2014 at 11:10AM ET
There are many responsible homeowners who took out very modest, First lien HELOCS that only reached 25 to 30% value of their paid off home. Rather than foreclose on equity rich, cash poor homeowners, why not simply offer a replacement HELOC so they can have another 10 years of interest only payments.

Everybody wins, the first investor is paid off, the homeowner gets interest only payments for another 10 years, and because the HELOC is first lien (and we presume at 50% or less of value of home), the investment is pretty safe from becoming upside down.

Additionally, the interest only payments are tax deductible and the homeowner can finish paying off their credit cards as well.
Posted by DebtNeutrality P | Saturday, May 31 2014 at 4:12PM ET
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