Lenders: Don't Miss Out on the Surge in Home Equity Loans
By Tim Smith
Tim Smith is co-founder and president of FirstClose, Austin, Texas, a provider of end-to-end technology services to refinance and home equity lenders nationwide, as well as a vendor management system that eliminates duplicate data entry. The company's flagship product, the FirstClose Report, delivers title, flood, valuation and other important data elements in one report. For more information, visit www.firstclose.com.
For the first time in a long while, mortgage providers are seeing a significant rise in home equity loan orders. After being all but nonexistent for years, home equity loans are making a comeback as the economy steadily improves and interest rates rebound. The stock market is rising, home prices have finally surpassed their pre-recession levels and borrowers are once again feeling confident in re-investing in their own homes.
However, amid all of this opportunity, lenders are still somehow missing out on both keeping and acquiring new customers. This is because, for the most part, the practice of processing home equity loans has not yet fully modernized and borrowers are quick to seek better, faster alternatives.
According to the National Association of Realtors, Millennials made up 35 percent of all buyers and 61 percent of first-time homebuyers in 2016. This is a huge portion of the home-buying market--and one that is not comfortable waiting very long to receive anything, let alone money for their home. In today's world, consumers can literally have access to just about anything they need with a touch of a button.
Unfortunately, the mortgage industry is not quite there yet.
On average, the home equity loan turnaround time is between 45 and 60 days. In an age of instant gratification, lenders must decrease this time significantly to meet demands of the new borrower generation, while still reducing human error and ensuring compliance. The easiest way to take advantage of the surge in home equity loans and keep the borrower happy is by automating the loan process with the right technology.
In years past, human error was viewed as an inevitable part of "staffing up." Lenders often increased headcount in order to deal with loan spikes, much like the issue the industry is currently facing, which means quickly training new employees and often putting them on the floor before they are fully ready. This leads to an increase in errors, which ends up slowing the entire process and costing the lender more money in the long run.
In addition, increasing headcount is incredibly unsustainable. As loan volume increases, or as more compliance regulations are enacted, more and more employees are needed until labor costs are eventually driving up production costs, to the point where loans simply become unprofitable.
By choosing to automate, lenders eliminate the issue of staffing up, thereby significantly reducing risk of human error. Not only does technology effortlessly and effectively handle large volumes of loans, but it also efficiently checks data to ensure that all information is correct. This allows human employees to concentrate their efforts on managing current customers and bringing in more business.
Furthermore, the right technology helps with ensuring compliance. Without automation, lenders are tasked with providing extensive training to all employees to guarantee that compliance standards are met. And, compliance standards change often, meaning that lenders are constantly undergoing training and retraining. However, with the right technology in place, extensive training sessions become obsolete as software can be updated instantly according to any changes in regulations.
An automated system also keeps data secure in one, centralized system and ensures data integrity with a standardized, repeatable process. Borrowers and lenders both rest easy knowing that data is protected and automatically part of a compliant quality control process.
Finally, and perhaps most important according to the new generation of homebuyers, technology significantly reduces the time it takes from initially receiving an application to successfully closing the loan. Lenders that use the right technology have effectively cut their closing time by more than half. In one instance, an anonymous bank that had been averaging 42 days for home equity loan closings was able to decrease its time to close to 18 days after only six months of using an automated system. Now, that bank can close a loan in a mere 12 days.
Technology is clearly the best solution to cut closing times and reduce costs, largely due to the extensive databases that can be accessed within seconds. In the past, lenders had to use multiple data outlets to gather things like tax information, current market value, photos of the property, a copy of the deed, transaction history and more. By choosing to automate, lenders have access to everything they need in one secure place.
For lenders to fully take advantage of the recent surge in home equity loans and maintain positive relationships with borrowers, the solution is clear: the right technology reduces error, increases compliance and decreases time to close.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor does it connote an endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at firstname.lastname@example.org.)