By Ray Birch
NEW YORK—With first mortgage volume slowing, one company suggests expanding home equity lending above 80% LTV to keep the pipeline full—recommending a way to do that safely.
Rick Hughes, SVP at NFP, an insurance broker that offers coverage for home equity lines of credit, closed end equity loans, purchase money second loans and home improvement loans, addressed how more credit unions are increasing LTV on home equity loans but insuring the additional amount.
Interest rates remain high and over 60% of homeowners have a rate of 4% or less. You’ve got to do something to try to make up that first mortgage volume that you're losing,” he said. “This is an opportunity to do that because you can expand beyond 80% CLTV. There’s $6 trillion in equity above 80% in the home equity market now. That’s substantial. And the next two years look very good for this market.”
NFP offers the Equity Protection Program that creates more loan opportunities for credit unions by increasing CLTV parameters and guidelines, expanding loan options for borrowers.
“We're going to book well over a billion dollars of this business this year,” Hughes said. “So, there's customers out there looking for something greater than 80%, and if you're not able to provide it they're going to find somebody that will.”
CUs Cutting Back
Hughes told CUToday.info a number of credit unions have been cutting back on home equity lending.
“There's been a wait-and-see attitude since the pandemic,” he said. “It seems like every time we talk to particular lenders, they keep finding a way to say we're just not ready to go there right now. They’re still looking to see what happens. And it's for one reason or another—the pandemic, and then it's inflation, delinquencies and the election…”
Hughes reminded that home values are at an all-time high.
“It is a good time to be thinking about expanding the equity product,” he said. “With our product you can go up to 100%. You don't have to go that high, but you can.”
NFP individually underwrites each lender to design a pricing structure and set of underwriting guidelines that suit the credit union’s particular needs.
“It can increase your loan offerings up to $250,000 per loan,” Hughes said. “Our delegated guidelines include debt- to-income ratios as high as 45%, and FICO scores as low as 660 for most loans and lines of credit.”
Hughes said that an overly cautious approach can backfire.
“Focusing on waiting for deposits instead of taking advantage of the thriving equity lending market will not guarantee a positive liquidity position—and may instead hurt balances,” Hughes said. “This is going to help credit unions grow revenue because it’s going attract a group of loans credit unions typically wouldn't do without some type of coverage, or some type of credit enhancement.”
Not A Heavy Lift
The Equity Protection Program comes with a monthly charge based on the outstanding balance on the loan.
“You're only paying on the outstanding balance,” Hughes said. “And the beauty about this product is that you actually build that rate into your premium. So this is basically free for the financial institution.”
Equity Protection Program doesn't require a heavy IT lift, Hughes said.
“From an IT perspective, the only thing it requires is that you be able to flag these loans so you can query it every month to be able to send to us for coverage,” he said. “It's very simple to use. We customize the product. We're willing to sit down with the lender and customize guidelines that work for them. And our service level is high. It's a way to expand at a time even when you feel like there might be some risk out there, and do it safely.”