How are Independent Mortgage Banks (IMBs) responding to borrowers' need for cash in today's market?
Lenders are operating in an interesting environment right now. With costs for everything rising, consumers are finding the need for extra cash. In the past, when mortgage interest rates were in the very low single digits, the homeowner would just go back to their lender for a cash out refi.
Those days are over.
Today, homeowners are chained to their current low interest rate mortgages and are not willing to trade it in for a loan in the 6-to-7% range. But they still have a fair amount of equity in their homes.
As many experts have predicted, this has led to an increase in home equity lending and we expect to see more of that in the future.
The interesting thing is that whereas in the past, home equity was handled primarily by portfolio lenders who had sufficient deposits sitting on their balance sheet to meet the Fed’s capital requirements and who have assets for loss reserves if they securitize the assets.
Independent mortgage banks (IMBs) have traditionally not been players in that game.
But today, we’re seeing more IMBs that are.
Because the Mortgage Cadence Platform (MCP) can process any mortgage asset, including forward, reverse and home equity, we have insight into what lenders are using our platform to originate.
Lately, we’ve been seeing more IMBs using MCP to originate home equity loan products and then selling that production off to partners. These firms are partnering with the institutions we typically see in the home equity business, acting as a broker to bring them more production at a time when every lender needs it.
This is proving to be a smart tactic for IMBs who already have a sales force on the street, even if brokers they don’t directly control make up a lot of their sales power.
The depositories are happy to get the production and so it’s a win-win.
And then, there are the homeowners who are finding it possible to tap into their home equity without giving up their current low-interest first mortgage.
This is a great tactic for IMBs because it allows them to maintain that relationship with the borrower so that when interest rates do fall, they’ll be in a better position to win future business.
Another shift we’ve seen in the market of late has to do with the way homeowners are treating their home equity lines of credit. In the past, for every 100 homeowners who would get approved for a HELOC, onlyabout 30-35% would actually use the line..
Today, 75% of the homeowners are drawing down their line. That’s a new dynamic that lenders haven’t seen in the past. And it’s good for the banks. Instead of having to post reserves equal to the approved amount and then only earn interest in the third that borrowers draw, they are making money on a larger percentage of the line. This makes many traditional HELOC lenders, including Credit Unions, willing partners for some Independent Mortgage Banks. We expect this situation to contribute to higher.
By Joe Camerieri, EVP, Sales & Strategy at Mortgage Cadence
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