6 home equity product related developments in the mortgage industry

November 14, 2022 7:03 AM

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Many lenders have launched home equity products to make up for declines in other loan types. At the same time, borrowers still need to be sold on the advantages of home equity lines of credit (HELOCs) and reverse home equity conversion mortgages (HECMs).

Below we round up new home equity product launches and studies on their use in the industry.

HELOC boom intensifies as refinances tank

Rising interest rates may have led to a sharp decline in the refinance market, but as a way to develop new business, lenders are focusing on home equity lines of credit, which allow borrowers to tap into home values while keeping their first-lien mortgage rates, rather than rolling over into current rates.

Deterred by the high interest rates themselves, homeowners are, in turn, exploring HELOCs for their financing needs and looking to leverage the $11 trillion of tappable equity in the U.S.

"Frankly speaking, they would be crazy to give up that first mortgage rate and do another cash-out refi," said Ken Flaherty, senior consumer lending market analyst at Curinos. Instead, homeowners are fast becoming the top priority of mortgage servicers and lenders for their home equity products.

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HELOC boom intensifies as refinances tank

Home loan / reverse mortgage or transforming assets into cash co

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Home equity products still have image problems, survey finds

Consumers would take greater advantage of home equity lines of credit (HELOCs) and reverse home equity conversion mortgages (HECMs) if they had a better understanding of them, according to a report by Finance of America Reverse.

HECMs are not well known and misconceptions abound. "Unfortunately, the reverse mortgage has a bad history," said Steve Resch, vice president of retirement services at FAR. Meanwhile, HELOCs are often sold as contingency funds, when they could be used for many other purposes, such as renovations or education costs.

"There are numerous and almost unlimited ways you can use [them]," said Ken Flaherty, senior consumer lending market analyst at Curinos. "But that's the challenge. You sell the line, but you don't sell the usage and the flexibility."

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Home equity products still have image problems, survey finds

HELOC growth at fintechs points to potential shift for nonbanks

Home equity lines of credit are gaining significant momentum among fintechs looking to take advantage of the product, as rising interest rates continue to drive consumers away from cash-out refinances.

Fintechs are seeing major increases in HELOC originations, such as at Figure Technologies where volume reached $200 million in April, double the monthly average of $100 million in Q4 2021.

"Based on our conversations, a big percentage of nonbank lenders are trying to figure out how to do this product right now because, anyone who is doing mortgages, their volume has dropped," said Jackie Frommer, chief operating officer of lending at Figure.

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HELOC growth at fintechs points to potential shift for nonbanks

Rocket home-equity loan aims to offset refinancing decline

The dramatic drop in refinancing volume caused by higher interest rates has led Rocket Mortgage and other independent lenders to turn to new home-equity products to diversify to redress the balance.

According to the Federal Reserve Bank of New York, homeowners have nearly $28 trillion equity today, which could be tapped to reduce other higher-interest-rate loans.

"Our goal is to consistently create financial products that help our clients achieve their goals," said CEO Bob Walters. "In the current market, short-term interest rates have risen sharply — making it much harder to pay off credit card debt."

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Rocket is the latest to launch a new home-equity product

Home equity loan fraud prevention tool launched by First American

Mortgage lenders can ensure their compliance with CFPB regulations on their responsibility for the vendors they use with FraudGuard Home Equity, a new home equity fraud prevention tool.

With consumers increasingly using home equity products instead of refinancing, First American Data & Analytics' single-source tool enables lenders to manage their use of third-party vendors

"Lenders can assess the risk on a potential home equity loan using one centralized tool that analyzes all appropriate risk categories," said Paul Harris, general manager, mortgage analytics at First American.

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Home equity loan fraud prevention tool launched by First American

Home equity lending to small-business owners up since 2021

Alternative financing startup Hometap is one of a growing number of fintechs that is helping small business owners stay afloat in the face of recent demanding times with a lending product that allows them to utilize the tappable equity in their properties.

Hometap's financing solution allows business owner mortgage holders to leverage their home equity in exchange for a percentage of the property's future value, and in contrast to HELOCs or small-business loans, no interest or monthly payments are due for the first ten years.

"It goes without saying that the past two years have been incredibly difficult for everyone, and business owners have demonstrated incredible strength and resilience in the face of countless challenges," said Jonathan MacKinnon, vice president of product strategy and business development at Hometap.

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Home equity lending to small-business owners up since 2021