Home equity levels have hit an all-time high in the U.S. As Black Knight reported in its July 2019 Mortgage Monitor, 45 million homeowners with a mortgage had amassed a total of $6.3 trillion in “tappable” equity – the amount of equity available to borrowers before reaching a maximum combined loan-to-value ratio of 80%. That works out to an average $140K of tappable equity per borrower.
What’s more, nearly half of tappable equity holders have current first lien rates of 4.25% or higher, making cash-out refinance an attractive option for those wishing to access the equity in their homes. Over three-quarters have interest rates of 3.75% or higher, meaning they could potentially tap into home equity via a cash-out refinance with little change to their existing 30-year rate. In some cases, they could perhaps even see a slight improvement.
When combining this potential market with today’s dynamics, the conditions appear to be ripe for increased equity-driven transactions. Tight housing inventory and high home prices have made many consumers more inclined to stay in their current residences and renovate, instead of purchasing new properties. Plus, some 71% of tappable equity holders have credit scores of 720 or higher – and more than half have scores of at least 760 – added incentives for lenders to go after this market segment
In an environment where fierce competition for new business, reduced origination productivity and significant margin compression are prevalent, an expanding pool of potential borrowers is certainly good news for lenders.
However, equity-driven transactions present their share of challenges – namely, thin margins, lower conversion rates and lackluster retention rates. In fact, just one in five borrowers taking equity out via refinance is retained by their lender/servicer on the other end of that transaction.
While several dynamics are likely responsible, one contributing factor could simply be the complexity involved in applying for and getting a refinance or other home equity product. Homeowners can certainly borrow money other ways – and indeed many do, opting for unsecured personal loans that are faster and simpler to obtain, for example.
For lenders to successfully respond to this dynamic and tap into this market, first they need to automate and digitize the end-to-end lending process as much as possible. A digital point-of-sale solution is critical to deliver accelerated prequalification and application processes. And, of course, a comprehensive loan origination system is necessary to standardize and automate back-end workflow. Ideally, the two would be seamlessly integrated, appearing as one system to lenders and their customers.
But, to improve pull-through and retention rates, it’s essential for lenders to also leverage a solution that supports digital closings – one that delivers the most efficiencies by adapting to the particular complexities and variations in the home equity closing process.
Selecting the Best Way to Close a Loan
Black Knight offers an end-to-end eClosing fulfillment platform – Expedite® Close – that uses intelligent technology and “lights out” processing to help reduce the complexities inherent in mortgage and home equity lending. Expedite Close supports the eClosing process for all loan transaction types with comprehensive automation, workflow and decisioning. What is especially unique and impactful about the technology, though, is its ability to leverage embedded logic and client-defined rules to systematically select the best way to close each individual loan transaction – wet sign, hybrid, or fully digital – without lender intervention.
This digital closing software accommodates most potential variations on the closing process. For example, if a borrower chooses to digitally sign documents but does not access them within the appropriate timeframe, Expedite Close will automatically change to a workflow that supports a wet-sign transaction, eliminating document-fulfillment workflow gaps. When a consumer electronically signs documents, the technology determines if all the other factors are in place for a complete digital transaction to occur, such as the county allowing eRecordings and the state permitting eNotarizations.
Expedite Close’s intelligent technology helps reduce friction in the origination process by systematizing and simplifying the decisioning complexities of closings. There is no need to change systems or processes midstream, letting the lender focus instead on increasing turn times and improving the consumer’s experience. By taking the complex decisioning out of the equation, Expedite Close helps facilitate significant efficiencies, which in turn, reduces costs.
Black Knight conducted a cost-benefit analysis on Expedite Close and found that the software reduces costs anywhere from $40-$100 per transaction, depending on the degree of digitalization. Incremental financial benefits are aligned with each step of the journey, as the lender gets closer to a fully digital transaction.
Even with completely wet-sign transactions, lenders using Expedite Close can still reduce their costs more than $30 per origination through increased operational efficiencies. But as more and more states accept eNotarization, lenders will already have the technology in place and can move toward a fully digital future that aligns with their unique business goals.
Reducing Fall Out
Factors that contribute to slow turn times in manual closing processes include communication and document exchange between transaction participants. Expedite Close helps overcome these challenges by providing a secure, online portal that manages workflows, includes easy document upload capabilities, and enables all participants to seamlessly interact with each other in the same “workspace.”
In addition, within this workspace, consumers can view their loan status, look at the closing package in advance, e-sign documents at their convenience, and access documents from a mobile device or desktop, helping to improve engagement. The workspace increases transaction visibility and engages consumers earlier in the process, helping to prevent fall out as they can easily see that their loan is moving forward in the process.
Another compelling feature of Expedite Close is its ability to fulfill the closing needs of all transaction participants, with minimal, if any, change or disruption to existing loan closing workflows, making it easy to use and cost-effective from day one.
Increasing Speed to Market
Expedite Close is a win-win for both lenders and consumers. This single solution provides the speed and ease consumers expect, while delivering significant efficiencies to lenders by taking on decisioning complexities. Wet sign, hybrid, and full digital closings are all natively supported by Expedite Close. Additionally, lenders can take advantage of the eClosing software no matter how they originate a transaction – whether in a branch, using a third party or via “mail-away” closings.
The key factor in all cases is that Expedite Close provides speed to market. With more transparency into loan status, easier closings, and anytime, anywhere access to documents earlier in the process, consumers directly see the progress of their loan, which helps prevent them from seeking other borrowing opportunities.
Expedite Close supports first mortgages as well as refinances and home equity lending, enabling lenders to take advantage of its unique capabilities for their other real estate-backed loan products, creating even greater efficiencies. In a market with such high amounts of available equity, Expedite Close can help lenders gain greater efficiencies, cost reductions, higher conversion rates and happier consumers – while tapping into more equity-driven business.