What a year, right? On a macro level our industry is going into 2024 dealing with a lot of the same conditions we left in 2023… record high interest rates, rising home prices, low inventory and affordability issues. In fact, our industry’s mantra for this year has become “Stay Alive ‘Till 25!” Lenders are looking to capture business wherever they can while doing more, with less. That’s where we come in…
With the significant drop in purchase and refinance volume, home equity loans (HELs) and home equity lines of credit (HELOCs) are an obvious replacement. In 2022, HEL and HELOC originations rose 50% compared with two years earlier, according to the MBA’s Home Equity Lending Study. “Given the nearly $30 trillion of accumulated equity in real estate, there is untapped potential for home equity lending for lenders and borrowers,” said Marina Walsh, MBA’s vice president of industry analysis.
Home price appreciation is red hot, and the average U.S. homeowner now has more than $274,000 in equity, according to CoreLogic. Homeowners across the nation collectively have nearly $10.6 trillion in tappable equity, according to ICE.
And while cash out refinances used to be much more popular than HELs or HELOCs, with 62% of homeowners with rates below 4%, borrowers are just unwilling to give up those historically low interest rates for a refinance, and rightfully so. So, home equity is suddenly on every lender’s product roadmap.
So where do we go from here in 2024?
Well, even though last year’s industry predictions that called for rate drops in the second half of 2023 were way off, there’s still hope that rates will drop in 2024. In fact, the Fed has even penciled in three rate cuts next year.
At the end of December, the average 30-year fixed mortgage rate fell to an average of 6.61%, the ninth straight week of declines, according to Freddie Mac. Although this is positive, industry experts don’t expect rates to drop that dramatically and no one expects to see rates back in the 3-4% range anytime soon. In fact, the MBA’s 2024 forecast is predicting mortgage rates could hover in the 6.3% – 6.6% range during peak home buying season before falling to 6.1% to close out 2024.
All of these indicators suggest that home equity is still going to be one of the few bright spots for lenders in 2024. However, there are some hurdles lenders need to overcome before jumping into the equity business. The most important one being setting up a distinguished, separate process from first mortgage offerings. Home equity processes are different than first mortgage and have often been regarded as antiquated and time consuming. Lenders coming into the space or ramping up their business want a digital process, that compliments their first mortgage processes, that will assist with margins, since the home equity space is traditionally a tight margin space, and that will streamline the process from application through closing.
Additionally, because there isn’t an active secondary market for home equity, we understand that liquidity can become a challenge or an opportunity lenders face while originating HELOCs and/or HELs. FirstClose understands these concerns and tries hard to connect home equity sellers and investors through our liquidity network so everyone can participate in this monumental market opportunity (and “stay alive to 2025”!).
At FirstClose, home equity isn’t just a fad for us. It’s what we do and what we’ve been doing for nearly 23 years. Our FirstClose Equity technology eliminates time-consuming operational touchpoints, advancing qualified leads and triggering settlement services. Having automated workflows including the ordering of credit, flood, appraisal, title, tax, income, employment, and asset verification in one easy-to-navigate platform takes friction, cost and risk out of the process.
FirstClose Equity allows lenders to offer their borrowers a streamlined process that cuts down the origination and closing process to as few as 7 days (depending on HEL or HELOC) vs. the industry standard of 45-60 days. Borrowers can get feedback on their home valuation, available equity, become prequalified, submit for a loan and receive conditional approval all in a matter of minutes – all from a white-labeled borrower-facing platform. The order management module is currently used by more than 200 lenders nationwide to order the required settlement services, taking cost and friction out of the process. And most importantly, FirstClose writes all information directly into the LOS without the need for manual entries, further streamlining operations and the borrower experience.
To learn more about how you can capitalize on the home equity market in 2024 and how the right technology partner can help you streamline and optimize your home equity lending process, contact us.