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Tony Mun

Why HELOCs Should Be On Your Radar

By | Mortgage | No Comments
In a market with rising home values, increasing interest rates, and homeowners reluctant to refinance or sell, many homeowners turn to home equity lines of credit (HELOCs) to meet their financing needs.
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, 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 have become far stricter in their underwriting; thus, borrowers have much higher credit scores and borrow less of the available equity in their homes.
7 Reasons Why Consumers are Tapping into their home equity

Why Should Residential Mortgage Owners Care?

As noted by Fort Schuyler Advisors, a look at recent Google trends shows an increase in HELOCs searches with the search index at it’s highest in five years. This, coupled with a recent TD Bank survey which found 35% of millennial customers willing to consider a HELOC product, shows a clear segment of borrowers in the market that can help drive loan growth via HELOCs. Additionally, given the overall interest rate pullback, growing HELOCs origination can offset the drop in mortgage activity many originators have faced so far in 2019.
Secondary Market Considerations

1. Buying HELOCs
Since many originators have limited experience with HELOCs, but have nonetheless acknowledged the value in the product, many have shifted to buying HELOCs via loan trading. Buying via an online marketplace, such as Stackfolio, for loan trading can be a very cost-effective and time-saving solution. Stackfolio’s online loan marketplace 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, many originators of HELOCs 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 an efficient and profitable solution. As an example, In a recent large HELOC trade on Stackfolio, the seller earned 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.
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.

Tony Mun is a consultative executive with varied experiences within the whole loan spectrum. Tony is able to employ a unique view point as a result of his deep-rooted understanding of the legacy brokerage models. It is his goal to help frame an illiquid, non-transparent and misunderstood marketplace via a unique technology platform.
Stackfolio is an online marketplace for loan trading and participations between financial institutions. Click here to visit the Stackfolio Marketplace.