By Ray Birch
AUSTIN, Texas—Expect the home equity lending business to come “roaring back” in 2022, according to one analyst, who emphasizes the opportunity will be missed if a credit union can’t quickly deliver decisions and funding.
“2021 was a big year for new home loans and refinance lending. Lenders faced many challenges in closing these loans with the shortage of appraisers, agents, and brokers available to complete appraisals, evaluations, and property condition reports,” explained New Vista Solutions CEO Jesse Rivera. “As the Federal Reserve Bank increases interest rates this year, borrowers will be turning away from refinances and new purchases and look to home equity loans and HELCs to borrow from.”
Refinances comprised over 70% of the non-first mortgage loans while home equities comprised 28% in 2021, and it is expected that those numbers will flip heavily in favor of home equity loans in 2022, he said.
What the Numbers Show
Rivera pointed to the rising amount of equity in consumers’ homes that has resulted from the rapidly appreciation in home values over the last two years as reasons consumers will be looking to tap their equity.
According to Black Knight’s latest Mortgage Monitor report:
- The amount of equity available for homeowners rose by 32% year-over-year in October, an increase of $2.3 trillion since Q3 2020
- Home values over the past 18 months have increased the average borrower’s equity stake by $53,000
- Rising equity stakes have pushed mortgage debt down to just 45.2% of the average home’s value
A Surge in Business
BankRate is also predicting a sharp rise in HELC demand this year, stating, “As mortgage refinancing rates drop off, more people are going to be using their home equity.”
Cash-out refinances have surged in the pandemic era, when the average rate on the 30-year fixed-rate mortgage has mostly remained under 3.5%, according to Nerdwallet.
“But mortgage rates are expected to rise in 2022, potentially approaching 4% toward the end of the year. The last time the 30-year fixed was consistently above 4% was at the end of 2019,” NerdWallet observed.
Rivera said rising rates are going to turn more people away from new home purchases in favor of tapping the equity in their homes.
“Not as many people are going to be able to buy new homes,” Rivera said. “They're going to have to take out equity and stay in their homes because it just makes sense—you're facing a potentially 4% new mortgage rate instead of the 2.5% we have seen for years. We think the home equity market will continue to roar or for several years.”
The Need for Speed
But just recognizing there could well be a surge in HELC business will not be sufficient to generate new loans for some credit union lenders, said Rivera, who emphasized systems and processes must match those of the speediest in the market, including the fintechs.
“Lenders across the country are developing competitive home equity processes to take advantage of these opportunities to streamline and close their home equity loans faster and look for new products to combat the ongoing evaluation and appraisal challenges,” Rivera told CUToday.info. “Taking advantage of the latest in technology, as well as consolidating vendors and utilizing compliant, alternative products, will be crucial in creating a competitive edge with the increase in home equity lending.”
Rivera emphasized credit unions must use and get comfortable with automated home valuations.
“If a credit union is using full appraisals or drive-by valuations then you know their costs are high,” said Rivera. “Especially if they're absorbing those costs. They can be enormous and the turn times for full appraisals, that will be a challenge for many lenders.”
Rivera said speed is the key, as the fintechs have demonstrated, noting that there are fewer appraisers in the industry today, which not only leads to slower turnaround but higher costs for lenders.
“Some appraisers can simply charge what they want, the demand is there,” Rivera said. “You need technology and automated processes.
New Solution Offered
For its part, New Vista Solutions has just introduced SmartView, an all-in-one evaluation and property condition report that allows homeowners to take pictures of their property via an integrated app that sends the pictures back the lender.
“That speeds up the completion of the report and geocodes the property location to eliminate any chance of fraud while eliminating the need for an agent to go to the property,” Rivera explained. “We recognize these challenges and provide the lending community with a complete, end-to-end settlement solution with cutting-edge products such as our FastTrack Home Equity Bundles, RON closing services, warranted AVMs, evaluations, and title searches, as well as hybrid appraisals, and our LoanProtect report.”