OREANDA-NEWS. April 14, 2016. Trends from two directions are driving interest in home equity loans. First, residential real estate prices have recovered enough for homeowners to once again consider tapping home equity to unlock the value of their homes without a sale.

Second, financial institutions now see home equity loans and home equity lines of credit as vehicles for driving lending volume and profitability in the face of rising interest rates and lower mortgage refinance volume.

A few data points help tell the story:

  • The total number of new home equity installment loans originated January-November 2015 rose 32.4% from the same time a year before, and the balance of those loans rose 25.2% — to \\$25.1 billion — according to National Consumer Credit Trends Report1 released by Equifax in February.
  • The total number of new home equity lines of credit (HELOC) originated January-November 2015 rose 13.1% from the same time a year before, and the total balance of those HELOCs rose 21.6% from the same time a year before, to \\$135.3 billion as cited in the same Equifax release.
  • From the end of 2013 through last year’s fourth quarter, home equity climbed 22%, Bloomberg News reported. The property value improvement continues to boost consumer confidence amid other economic uncertainty. “The increase in housing wealth is a kind of stealth offset to falling stock prices,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, told Bloomberg.
  • Last year, home values hit record highs in about a third of the 87 major U.S. housing markets as reported by real estate data firm RealtyTrac.

“Yet, even with this reassuring news, both consumers and lenders are cautious about home equity loans,” said Seth Kronemeyer, vertical marketing leader at Equifax Mortgage Services. “Memories of the financial crisis are still fresh, and lending requirements are more stringent than they were 10 years ago. That’s why Equifax is working with lenders to support data-driven marketing campaigns that can help grow their home equity businesses in a cost-effective and responsible manner,” he said.

Increase conversions and customer satisfaction

“The most successful campaigns consider traditional data, such as home price appreciation and lendable equity calculations, and also take advantage of predictive modeling and analytics,” Kronemeyer said. “This broad approach can help to improve response and conversion rates while increasing customer satisfaction,” he explained.

Prescreening prospective home equity borrowers

Kronemeyer described the benefits of incorporating multiple data sources into a home equity prescreen program. Property data enables market segmentation of targeted consumers. Then those marketing lists are further segmented by attributes such as loan-to-value ratios and credit scores.

“It’s also becoming more common for marketers to use property data in conjunction with ‘life event’ data, such as a marriage or divorce, to assist in better measuring a consumer’s propensity to respond to an offer and actually use a HELOC once it has been originated,” Kronemeyer explained. “Lastly, there are a number of property data elements that can remove a consumer from the marketing list. For example, if a consumer’s home is listed for sale, that household probably isn’t an ideal target for a home equity offer.”

Conducting invitation-to-apply campaigns

Some lenders are unwilling to take on the risk that might come with extending a firm offer of credit in conjunction with a prescreen program. “In those cases, an invitation-to-apply, or ITA, campaign is a great alternative that allows lenders to focus only on high-quality prospects who may likely be interested in a home equity offer,” Kronemeyer said.

Property data still plays a role; it can be used to segment existing direct-mail ITA lists that meet a lender’s geographic and other criteria. In addition, property data may help financial institutions identify real estate-secured cross-sell and up-sell opportunities from among existing customer lists — opportunities that don’t require a firm offer of credit.

Data-driven marketing campaigns — whether prescreens or ITAs — can help increase home equity lending volume efficiently, while also helping increase customer satisfaction and mitigate risk. They’re a key strategy for any financial institution seeking new paths to profitability as interest rates rise and the volume of mortgage refinances declines.

 1Equifax National Consumer Credit Trends Report – February 2016