FirstClose Blog

Earlier this month I had the privilege of moderating the ACUMA Inside Track webinar, “Enhancing Home Equity Processes and Elevating the Member Experience.” Our discussion featured insights from industry experts including MBA’s Jon Penniman, ICE Mortgage Technology’s John Holbrook and Sharonview Credit Union’s Kelton Graham.

Here were some of the takeaways:

1. Home equity market is growing
   Jon Penniman kicked off the session by analyzing the current home equity landscape, emphasizing how economic factors like interest rates, unemployment, and inflation are impacting home equity levels. Penniman shared key findings from the MBA’s 2024 Home Equity Lending Study including:

• • Rising Home Values: While the growth in home prices is expected to slow from previous highs, the overall trend remains positive. The MBA is forecasting home price growth to slow from what it’s been in previous years (18% in 2021) but still stay positive.
  • Increased Home Equity Debt: Home equity debt has reached $519 billion, a 20% rise since 2021’s lows.
  • Equity Levels: Home equity is likely to reach new records. In the first quarter of 2024, home equity reached a new peak of $32.8 trillion and homeowners have about $18.7 trillion in tappable equity.
  • Shifting Usage Trends: Renovations remain the top reason for tapping equity, though usage has decreased to 56%. Conversely, debt consolidation has risen to 33%.
  • Homeowners Staying Put: As homeowners remain in their properties longer, there’s a growing need for renovations. Educating them about HELOCs and refinancing options can enhance their experience.

With only 13% of all mortgages having interest rates above 6%, Holbrook noted, “There is no refi boom coming. At best it’s going to be a snap, crackle, pop. If you’re a lender sitting on the sidelines saying, ‘the rates are going to drop’, they’re not coming down anytime soon.” This is the time for lenders to start marketing to homeowners to help them understand what’s going on in the economy and why now is the best time to get a HELOC or closed end second.

2. GSEs are Enhancing Market Options

The announcement of Fannie Mae and Freddie Mac’s pilot program to purchase closed-end seconds introduces new liquidity sources. Kelton Graham highlighted, “With GSEs entering this space, homeowners now have multiple ways to access equity—whether through a HELOC, cash-out refinance, or home equity loan—allowing lenders to provide a more tailored approach.” This development will be key for lenders, especially going into 2025, who want to offer a holistic approach of strategies to their customer base.

3. Advancement in Valuation Technology

According to the MBA’s Home Equity Study, in 2023 more than 75% of all home equity originations utilized AVMs or Desktop Valuations. AVMs certainly aren’t new to the home equity space but the industry is at a current inflection point with AVMs because of the advancements in technology. Modern AVMs are built on vast amounts of public and property data and integrate computer vision—an AI capability that analyzes property photos for conditions and quality. This innovation not only improves the borrower experience and customer journey by providing more accurate valuations but also better protects lenders from a risk perspective.

4. Future-Ready Strategies

Holbook urged lenders to take a step back and analyze their processes and procedures. “Putting strategies in place today, while the market is somewhat slow, is not only going to help you get new customer now but will prepare you for the next wave of customers.” With home equity, specifically, lenders should ask themselves a series of questions when looking at their processes:

• • When were our policies last updated?
  • How can we streamline our operations?
  • How can we create a better experience for the borrower while complying with new regulations and protecting ourselves from risk?

To learn more about home equity opportunities and how the right technology partner can help streamline and optimize the home equity lending process, download the full webinar here.