Credit card with HELOC features vies with second lien loans

Fintech GoodLeap launched the GoodLeap Home Visa Signature Card, a home equity line of credit that pays 6% cash back on home improvement projects initiated through the company's app. This is a reward rate the company says is the highest available for home improvement spending from any major card. 

Credit lines run up to $150,000, subject to underwriting. There is no annual fee and the card works anywhere Visa is accepted. Cross River Bank is the issuer, but GoodLeap originates and funds the credits itself. 

Homeowners can pay contractors as work progresses rather than taking a lump-sum draw, and GoodLeap says eligible customers may access funding in as little as three days. 

"A homeowner who just spent $20,000 upgrading their HVAC system shouldn't be earning a few airline miles on a credit card with an average APR north of 20%. They should be earning meaningful cash back on the thing that just made their home more valuable," said Dan Lotano, Chief Operating & Strategy Officer at GoodLeap.

For lenders and servicers, the more useful question is not the rewards rate but what the launch says about who now controls the second-lien relationship. Paying for renovations is one of the main reasons homeowners seek to remove equity from their property. However, many also use their own savings or a credit card to finance their project.

First quarter equity withdrawals hit their highest Q1 level since 2021, with 54% of extraction coming through second liens as borrowers protect below-market first mortgages. Bank of America Securities expects $41 billion in second-liens and HELOC securitization this year, the strongest pace through late July since the financial crisis. 

Most recently, HELOC volume fell 12% from Q4 but rose 5% from the previous year, even as overall production slumped. 

GoodLeap is also not the first in the equity-card format. Better launched their card on Stripe Issuing, paying 1% cash back, the same month SoFi announced its own move into direct HELOC lending. Aven, whose card is issued by Coastal Community Bank, pays 2%. Others include Deephaven and Beeline as part of the non-traditional equity push. 

The 6% from GoodLeap is high in this category, but the disclosures narrow it considerably. The top rate applies only to qualifying projects started in the GoodLeap Home app. Everyday purchases earn 1%, rising to 3% only after $2000 in a billing cycle and capped at $30,000 over 12 months. The variable purchase APR runs 13.24% to 18.00%, or from 12.99% with an autopay discount, with fixed installment segments starting at 9.99%.

Borrowers are trading rate for rewards on a line secured by their home, though no regulator has weighed in on the structure. However, excessive tapping of home equity, which many compared to someone using their house as a credit card, has been cited as a cause for the Great Financial Crisis.

GoodLeap already finances solar, HVAC, roofing and window work through thousands of contractors and the card plugs directly into that network. Homeowners can prequalify through a contractor before a project begins, then reuse the line for later work without reapplying. That moves the first financing conversation ahead of the loan officer. 

Servicers face a similar problem as nearly two-thirds of first-quarter home equity volume came from 2020 to 2022 borrowers and that 3.9 million of them now carry a second lien, which can complicate matters if the borrower defaults, even though they have a superior position..