Savvy Consumers Pose Marketing Challenge for Home Equity Lenders

PORTLAND, OREGON   With rates rising, lenders are beginning to return to more traditional methods of lead generation than, say, picking up the phone.  This is an area where loan professionals who entered the business before the beginning of the latest refi wave could have an advantage over their competitors.  Maybe.

According to Rich Weissman, president and CEO of Portland, Ore.-based DMA, marketing home equity products today is much different than it was just a few years ago.

“The home equity lending market has changed and changed significantly over the past few years,” Mr. Weissman told National Mortgage News.  “Borrowers are far more savvy and more savvy in a variety of ways.”

First of all, borrowers today realize that home equity products can be moved from institution to institution.  This is a departure from the way many consumers thought about these products in the past.  Furthermore, they realize that it’s not a complicated process in today’s lending environment to move their equity loans and lines to another lender.

Secondly, Mr. Weissman says borrowers have learned to think differently about the relationship between the mortgage products they own.  “The whole notion of how I get cash out of my house has become far greater than just a home equity loan.  There are lots of different options available for people to do that,” he said.

In the past, these products were fairly simple.  You couldn’t touch the equity in your home until your loan-to-value fell below 80% (which was where it started not so long before that).  Even then, risk-adverse banks wanted to loan less than 80% total on all mortgage-related products.  The type of product, whether a loan or a line, was pretty much a one-time decision and had an impact on the interest rate offered.  The loan period was also standardized.

Today, all of that has changed, Mr. Weissman pointed out.  “That’s no longer the case.  There are home equity loans that are variable.  There are home equity lines that have fixed portions.  There are special introductory rates that begin at a particular period of time and when that introductory period is over they change, even though it may be a fixed-rate product.  So the complexity is far greater.”

This combination of a more informed borrower, a very competitive market for home equity products and a vast array of available solutions has made the home equity borrower more illusive and difficult to target,” Mr. Weissman says.  “The traditional ways of looking at who is an appropriate home equity borrower no longer apply today,” he said.

Targeting home equity borrowers today is a much more complicated process than it was in the past, but that doesn’t mean today’s mortgage professionals can’t handle it, Mr. Weissman said.  It involved thinking correctly about three important challenges, he explained.

First, the product.  “Understand your products and understand the profitability of each product, because different home equity product types have different profitability dynamics.”

In the past, this wasn’t a real consideration for marketing professionals in this area.  The product was standard and the market was standard and the goal was to sell as many as you could, Mr. Weissman recalls.  “Well, that’s changed.”  Today, there are home equity products that you must offer to be competitive that you would really rather not sell if you could sell another that is more profitable.

“You’ve got to understand the profit dynamics of each and every product type and each and every design and configuration to understand which ones you want to sell and which ones you don’t,” Mr. Weissman said.

The second challenge is on the delivery side.  “People are coming up with new ways to deliver home equity products.” Mr. Weissman pointed out.

“They are coming up with ways to make that process easier.”

One area where home equity lenders have had great success is in the reduction of paperwork that has led to increased speed to close.  The Internet has also made it easier for borrowers to tap into their home equity.

"Speed and simplification has become the rule.  And so for banks, credit unions and others who want to make certain they are targeting their core franchise, they've got to make it as easy to get approval and get your money," Mr. Weissman pointed out.  "Only the legal requirements for the rescission period should limit how quickly you can get it done.  Otherwise it should be as fast as fast can be."

Re-printed with permission