As the founder and CEO of Coviance, I’ve witnessed firsthand the strategic role that home equity lending can play for lenders seeking sustainable growth.
In today’s dynamic financial landscape, it’s a must for financial institutions to pivot towards initiatives that not only drive revenue but also foster lasting customer relationships. Home equity lending stands out as a prime opportunity to achieve both.
Increased home values have boosted homeowners’ lendable equity, with tappable home equity reaching upwards of $20.3 trillion earlier this year. Plus, two thirds of this tappable equity is held by homeowners with credit scores of 760 or higher. Climbing mortgage rates have many homeowners opting to maintain their low rate and leverage their existing properties to access capital.
Allowing homeowners access to their lendable equity can expand the banking relationship with borrowers. The impact of home equity lines of credit, or HELOCs, can be far more valuable to the consumer when compared to the average interest rate most consumers maintain on their credit card balances. When positioned correctly, financial institutions can leverage home equity loans to drive long-term growth by acquiring more new customers and building stronger banking relationships with their current customers.
This data is telling us that home equity and HELOC products are appealing, and that there’s a large audience of low-risk, qualified borrowers. By leaning into this market demand, institutions can use home equity as a powerful vehicle for revenue and asset growth.
Scott Johnson, Senior Vice President and Director of Consumer Lending and Mortgage for Tampa, Florida-based BayFirst Financial, a Coviance customer, says “Home equity has been a great source to establish long-term relationships with the bank in hopes that we create and increase our own deposits. We’re able to provide a borrower experience that enables us to have conversations with the borrowers to increase their relationship with the bank. We want to be a full circle lender and bank to our borrowers, and home equity is a big part of that.”
While the opportunities in home equity lending are clear, success in this vertical depends on process efficiency and customer experience. Automated processes are crucial to maintain efficiency and customer satisfaction. By streamlining processes, implementing technology and leveraging automation, financial institutions can expand their home equity portfolios and gain significant benefits in the process, such as:
• Enhanced Efficiency. Automating routine tasks such as data verification, credit worthiness and application processing allows financial institutions to handle higher loan volumes quicker, without the added pressure to increase staffing. By automating their processes, BayFirst has grown from closing 193 loans in 2021 to being on pace for over 800 loans in 2024.
• Risk Mitigation. Balancing the need for fast, efficient loan approvals with thorough risk assessments can be challenging for lenders. Leveraging technology for standardized workflows with built-in compliance checks and balances can reduce errors and ensure regulatory adherence, a crucial factor in this heavily regulated industry.
• Improved Customer Experience. Today’s borrowers expect instant gratification and a mobile-first, frictionless process. Automation enables financial institutions to meet these expectations, providing a superior borrower experience that sets them apart from competitors. Johnson says, “There are so many responses I get personally from borrowers stating that this is the easiest, best loan experience they’ve ever had in their life. We’re gaining reputation and getting repeat borrowers because of the efficiency with our process.”
• Speed to Revenue and Reduced Origination Cost. By eliminating manual processes and automating already established underwriting parameters, financial institutions can significantly reduce the lending cycle, resulting in a faster path to revenue and fewer operational expenses.
As we look ahead to 2025, it’s clear that home equity could play a pivotal role in banks’ growth strategies. The combination of a strategic focus on home equity lending and the adoption of automation technology offers financial institutions a path to sustainable growth and competitive advantage. This approach not only taps into a lucrative market, but also positions financial institutions to build stronger, more comprehensive relationships with their customers, driving long-term growth and loyalty.
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