HELOCS a Growing Lending Potential for Credit Unions

WASHINGTON – Home Equity Lines of Credit (HELOCs) are quickly accounting for a growing portion of credit unions’ loan portfolio. In a Callahan & Associates-hosted Webinar March 22, credit unions already involved with HELOCs had the opportunity to share their lending success stories and strategies for “Helping Members Unlock their HELOC’s Potential.” The Webinar was led by Callahan & Associates’ Industry Analyst Tom Geggel and featured as guests: Tom Gray, SVP Lending, Workers CU, Fitchburg, Mass.; Scott Richter, VP Mortgage Lending, Eli Lilly FCU, Indianapolis, Ind.; and Mark Antonioli, VP Lending & Collections, Meriwest CU, San Jose, Calif.. How popular are HELOCs? In 1993, only 2,596 credit unions offered HELOC programs, but in 2004 that number was up to 3,759 CUs. In addition, HELOCs were the second fastest growing loan category for credit unions in 2004 – 29.61% (business loans ranked first with 34.23%). Among CUs with over $50 million in assets, HELOCs totaled $34.8 billion in outstanding loans for the industry. Geggel cited several factors fueling this growth – increased value of homes means more equity can be drawn out (average U.S. home prices rose 13% in the year ending Sept. 2004 and are up 50% over the last five years); the public in general is more aware of HELOC products; credit unions have reduced their turnaround time on members’ applications for HELOCs; and members have a higher comfort level with drawing against their home equity. The growing popularity of HELOCs is not limited to credit unions, it’s a nationwide phenomena. The outstanding value of home equity loans rose 68% from 4Q 2000 to $827 billion as of September 2004 (Federal Reserve); 1 in 4 households with a mortgage has a home equity loan or line of credit (National City Corp.); and $8.6 trillion can still be borrowed nationally (Federal Reserve). “The beauty of the HELOC is its flexibility and ability to be used for various things,” said Geggel who mentioned some of the most popular uses of HELOCs by members including home improvement, unsecured debt consolidation, school tuition, buying a second home, vacations, and buying a car. Gray said Workers CU has been offering HELOCs for over 20 years, and the product currently accounts for 26.1% of the $485 million CU’s loan portfolio of $429 million. It has $115 million in HELOCs outstanding and $25 million in home equity loans. Its delinquency rate for HELOCs 60 days or more outstanding is .20%. Gray described Workers CU’s primary HELOC as being a “very standardized product.” It is an 80% LTV, there are no introductory teaser rates, and the CU charges prime minus .25 for life (with a maximum of 18%). The product is primarily for owner occupied property although Workers does approve the loans on a case-by-case basis for one-to-two family and condo apartments. There is also no minimum draw. Workers also recently introduced a 95% LTV product with a minimum $10,000. it requires the borrower have mortgage insurance in Massachusetts, and the CU added 1.75% to the rate which covers the insurance. Eli Lilly FCU has 3,033 Line of Credit (LOC) accounts with $132.4 million outstanding. It has an additional $87.8 million outstanding in what the $626 million CU refers to as its Home Equity Loan Program (HELP) Line of Credit. The CU initiated its program in 1986. Eli Lilly has two HELP products – a closed end HELP (15-year loan, no fees, members gets approved amount in one lump sum) and a HELP 5/10 product (15-year loan, fixed rate for five years then a variable rate, .75% basis point fee). Neither product has a teaser rate. Eli Lilly promotes its LOC program by stressing to members the benefits of the product including spending flexibility, tax advantages, and its availability in all 50 states. Like Workers CU and Eli Lilly FCU, Meriwest CU has also seen tremendous success from its HELOC product – a $32 million portfolio net growth, increased penetration of member households, minimal delinquencies, and a 46% line utilization. The $940 million CU’s primary HELOC product is an 80% LTV to $250,000 product. Meriwest originates 100-200 new HELOCs a month and says it makes decisions on applications within 30 minutes and has documents ready for signing within three days. Antonioli said Meriwest decided to offer HELOC’s because it’s a `sticky’ product that has member and market driven demand. It’s a very competitive product in our markets, he said, noting that Meriwest hasn’t suffered any losses from its HELOC portfolio. -