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July 2018

Why HELOCs Should Be On Your Radar

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In a market with rising home values, increasing interest rates, and homeowners reluctant to refinance or sell, many homeowners are turning to home equity lines of credit (HELOCs) to meet their financing needs.
So this means HELOCs should continue to be an attractive and growing loan product offered by originators.
Why are borrowers using HELOCs?
  1. Cheaper. HELOCs can be a cheaper alternative than other common forms of borrowing such as credit cards or unsecured personal loans.
  2. Versatile. HELOCs give borrowers a lot of options for how to use the funds. Whether it’s paying off credit cards or debts or making home improvements, they allow homeowners to borrow smart.
  3. Not The Same as it Used to be. Many recall a very different borrowing and lending structure of HELOCs from prior to the financial crisis of 2008. Today, however, lenders are far stricter in their underwriting. So borrowers today have much higher credit scores and borrow less of the available equity in their homes.

Why Should Residential Mortgage Owners Care?

As noted by Fort Schuyler Advisors, a look at recent Google trends showed an increase in HELOCs searches with the search index being the highest in five years. Couple this with a recent TD Bank which showed 35% of millennial customers willing to consider a HELOC product, there is clear segment of borrowers in the market that can help drive loan growth via HELOCs.
In addition, with the refinance mortgage market at a standstill, growing HELOCs origination can offset the drop in mortgage activity many originators have faced so far in 2018. 
Secondary Market Considerations
  1. Buying HELOCs
    There are many originators that do not have experience with HELOCs, but see the value in the product. So some have turned to buying HELOCs via loan trading.  Buying via an online marketplace for loan trading can be a very cost effective and time-saving solution.  This allows the buyer to avoid the costs of origination and the potential challenges of setting up and operating the underwriting process. In addition, it can be far easier to strategically target the loan growth by specified geography, credit box, size of the loan, etc. 
  2. Selling HELOCs
    On the other side of the spectrum, there are many originators of HELOCs that have kept the loan origination in their portfolio but are in need of liquidity. Selling via an online marketplace for loan trading has shown to be efficient and profitable solution. In a recent large HELOCs trade on Stackfolio, the seller was able to earn almost a 2% premium on the traded balance. This sale allowed the originator to book the non-interest income from the premium while freeing up capital and capacity for new origination and loan growth.
    Also, sellers also have the ability to retain their servicing during a loan sale. So while sellers benefit from the added liquidity, they do not lose their valuable customer relationships during the process.
Omar Esposito serves as the Chief Revenue Officer of Stackfolio. His experience stems from over 15 years of whole loan trading, banking, and balance sheet management experience. At Stackfolio, Omar focuses on executing the company’s go-to-market strategy, scaling and aligning all revenue-generating aspects of the business, and building long-lasting client relationships with financial institutions across the country.
Stackfolio is an online marketplace for loan trading and participations between financial institutions. Click here to visit the Stackfolio Marketplace.