New to digital lending? Try HELOCs

More straightforward HELOCs make them a proving ground for digital lending

Projected growth and innovations in the HELOC market make it a proving ground for community banks looking to test the waters of digital lending solutions.

By Cheryl Winokur Munk

Banks looking to get their feet wet in digital lending might consider taking their first plunge with HELOCs.

Here’s what makes this market so ideal. For starters, home equity lines of credit are great long-term relationship builders. The HELOC space has been having a good run, with TransUnion predicting that the market will see 10 million consumers originating HELOCs by 2022 thanks in part to rising home prices and a withering refinance market. Coupled with the fact that the process for obtaining a HELOC is woefully out of date at many banks, experts say, the area is ripe for a digital overhaul.

“If you’re spending more time on people’s paperwork than the people themselves, it makes it very difficult to build relationships,” says Andy Papadopoulos, CEO of CloudBnq, a provider of digital lending and loan origination software to community banks based in Toronto, Ontario and Florida.

Quick stat

10 million

consumers are estimated to originate HELOCs by 2022

Source: TransUnion

The most attractive feature of going digital in the HELOC space is that there aren’t many lenders that are creating a good digital experience for their customers in HELOC products, says John Cabell, director of wealth and lending business intelligence at J.D. Power. “There’s a lot of opportunity here,” he adds.

A growing number of providers are coming on the scene to provide banks with digital lending solutions for home equity products. Prosper, a peer-to-peer lending platform, recently announced plans to launch a new digital HELOC product this year. Fintech provider Blend has also signed on more than 20 financial institutions to use its newly launched digital platform for home equity products.

To be sure, it is rare today to find a community bank that offers a digital end-to-end process for HELOCs, even though the technology exists. Many community banks have chosen to start out small, automating the process in dribs and drabs.

For instance, First Federal Savings Bank, a $665 million-asset community bank based out of Twin Falls, Idaho, has automated the online application process for all consumer lending products, including HELOCs. The bank made its first foray into online applications in 2004 with mortgages, and it began accepting online applications for HELOCs in 2014. The bank is now considering adding e-closings for HELOCs.

HELOCs can delay the process for banks due to regulatory constraints. Automating applications saves customers and the bank a significant amount of time, says Brenda K. Hughes, senior vice president and director of mortgage and retail lending at First Federal. Not only is it more convenient for customers to enter their information at their own pace, the bank has found there are fewer data entry errors when customers enter their own information.

“As more banks are able to originate HELOCs online, it becomes a competitive edge against those that cannot.”
—Samir Agarwal, Wolters Kluwer

Time is of the essence for both older and younger consumers, though a digital process could be particularly compelling to digital natives. “As more banks are able to originate HELOCs online, it becomes a competitive edge against those that cannot,” says Samir Agarwal, vice president for compliance solutions at Wolters Kluwer.

Not just for millennials

While drawing in younger customers is a laudable and necessary goal, community banks should be mindful that most older customers are also well versed in digital technology. Notably, First Federal has found that a sizable number of younger baby boomers want a digitized experience. In the bank’s experience, however, the process generally works best for customers of all ages when there’s a combination of human and digital interaction, Hughes says.

This echoes the findings of J.D. Power’s 2019 U.S. Home Equity Line of Credit Satisfaction Study. Despite rising use and satisfaction with digital channels in virtually every other aspect of retail banking, satisfaction is lowest among HELOC customers who gather information entirely online versus those who gather information in person or via phone only, and those who used both online and in-person channels.

Papadopoulos advises community banks that they can have their cake and eat it too. “Just because you invest in automated loan origination does not remove your client from ever seeing you again,” he says. “You can have a hybrid model where a customer can start an application online and come into the branch to finish the process.”

Some banks may be concerned about integrating a new digital lending platform with their old legacy system, but this generally is not an issue, says Dan Putney, managing director of mortgage solutions at Finastra, a financial services software provider.

In Finastra’s Fusion Mortgagebot solution case, it can integrate with almost all legacy systems, making building a digital lending platform simple from the bank’s perspective, Putney says, adding that it only takes about 90 to 120 days for Finastra to get a bank’s website fully up and running. And banks can choose whether to start out slow by rolling out only home loan products like HELOCs or they can choose to digitize multiple lending products at one time.

Cheryl Winokur Munk is a writer in New Jersey.