Only two million or so households have enough equity in their homes and high enough credit ratings to be viable candidates for home equity lending, according to an analysis by strategists at Lender Processing Services. But within that "sweet spot" lie a number of opportunities for lenders who dare to be creative, they said at CBA Live 2011.
In one market, an LPS client is pulling in its horns and is now offering only closed-end second liens – but with a twist, Tom Gritch, acting director of LPS Consumer Lending Strategy, told a room full of home equity lenders. The loans are at fixed rates for 10 years but with an option to continue beyond the initial period.
In another market, a client is targeting its high net worth customers who don't have any liens on their properties at the present. In this case, the lender is offering 20-year lines of credit based on "stacked collateral" – partly on the value of the property and partly on the borrower's other assets. These loans are interest-only with a variable rate with an option to lock in a fixed rate some time in the future.
Other clients are experimenting with different kinds of discounts based on payment performance and special promotions for current customers who have used only a certain portion of their credit lines. And in another instance, an LPS client is using lines as overdraft protections.
"The market (for home equity lending) is compressed," Gritch said. "But there is some opportunity."
