TheMReport — News and strategies for the evolving mortgage marketplace.
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24 | Th e M Rep o RT Feature without a direct relationship with the lender. As with many issues involving the mortgage industry, it is not a one-size-fits-all situation. From our experience working with lenders in the equity space, here are seven factors we've seen help kick-start home equity programs in recovering housing markets: factor #1 Analyze local market conditions. N ot every area is experiencing home equity's resurrection, and state and regional distinctions must be made when deciding whether or not to offer more home equity loans. It is best for lenders to actively market in locations where price appreciation on home values has risen. Lenders should carefully analyze their area and make decisions accordingly. factor #2 Take stock in existing borrower portfolios. I f the surrounding region makes sense, a natural and safe next step for lenders is to conduct a detailed portfolio analysis of their existing borrower base to identify those who might be viable candidates for a HELOC. Lenders already have a history with past and current borrowers and are familiar with their unique situations. They already know whether the borrower is delinquent or not; if the borrower pays on time or not; whether the loan would be a refinance cash-out or a first HELOC; and the current principal balance and interest on the home's loans. Logical decisions can more easily stem from the cultivated relationships lenders already have made versus prospecting new business for which they have no historical evidence. Keep in mind that local market changes are not the only factors that impact owner equity. Since 2009, thousands of borrow- ers have taken advantage of low mortgage interest rates by refi- nancing 30-year loans into 15-year or other short-term loans. Short- term mortgages build equity fast, and homeowners who have these mortgages often become excellent prospects for home equity loans going forward. factor #3 Determine what needs to be done internally to prepare. T he rules have changed, and home equity lending is not the same as it was pre-2008. Lenders should make sure they have the dedicated staff to fully comply with some of the challenges associated with the new environment. For instance, the Equal Credit Opportunity Act (ECOA) Valuation Rule requires home equity lenders to notify applicants within three business days of receiving an application of their right to receive a copy of the written valuation or appraisal. The ECOA Valuation Rule also requires home equity lenders to provide a copy of the valuation product to the customer upon completion or within three business days prior to loan consummation. All things being equal, this is relatively easy to accomplish. But things are not equal, and lenders should be prepared to handle an increased volume of customer inquiries that accompany this rule. Lenders should have the personnel in place to answer the many questions from customers within that three-day window. The training of key staff to get them up to speed with the compliance challenges associated with home equity lending is also important. The lender's staff should understand how to navigate the fixed seconds that now fall within the Qualified Mortgage (QM) rule and demonstrate that they have assessed ability to repay (ATR). As it relates to the ECOA Valuation Rule, lenders should provide training on the different valuation products—how to read them, how to fully explain them to the customer, etc.—so that the process moves along smoothly within the time constraints dictated by current regulations. If this seems overwhelming, look to tip No. four. factor #4 Decide if strategic partnerships are needed or if work will be done in- house. T o handle the uptick in business and the associated regulatory environment, lenders should decide if they are already sufficiently prepared internally, or if they need to begin vetting third-party resources for support. If the idea of offering homeowners more options sounds appealing, forming strategic relationships might be the best answer. And if that's the case, be sure to pick a proven professional. Now more than ever, it is important for lenders to look for companies that are driven to provide homeowners, investors, and lenders increased certainty in their lending experience. Find a company that under- stands centralized processes, is compliance focused, and has a uniform, comprehensive offer- ing in all 50 states that can help mitigate, manage, and insure risk. Consider a company with a Many lenders are opting to save that borrower relationship by offering more options to help from a title and settlement standpoint rather than settling for a traditional pay-back period on a home equity loan.