How Credit Unions Can Compete for Home Equity Loans & Win

Research from Cornerstone reveals home equity loans are among the top lending priorities for credit unions in 2023, with 59% of credit unions focused on home equity this year. With interest rates continuing to rise and Americans sitting on record-high levels of home equity, credit unions are wisely shifting their focus to home equity lending over other loan types.

New data from TransUnion proves demand is strong for home equity loans and lines of credit, as originations surged in Q3 of 2022 and the credit bureau’s forecasts are predicting that home equity originations will increase by 24% in 2023.

Higher interest rates, inflation and stubbornly high home prices are among the factors contributing to the booming home equity market. Mortgage interest rates rose by more than 300 basis points last year, which has left many homeowners suffering from the “I hate my house, but I love my mortgage” syndrome, according to the Urban Institute. These homeowners who locked in an ultra-low fixed-rate mortgage in the last several years may want to buy another home, but they want to avoid a higher mortgage rate. As a result, more homeowners are staying in their current home and opting to renovate or use their equity to consolidate and pay down debt.

While demand for home equity remains strong now, the amount of tappable equity Americans have in their homes will not remain this high long-term. Americans saw record-high levels of tappable home equity in 2022, but tappable home equity is expected to decrease by 6.5% year-over-year from Q4 2022 to Q4 2023, according to TransUnion. As home prices eventually decline and stabilize, tappable equity will fall as well.

However, despite the anticipated decrease, the amount of available equity that homeowners have in their homes will remain substantial in 2023. Credit unions can and should act now to capitalize on the boom in home equity and strengthen their relationships with homeowners long-term.

The question is, how can credit unions compete in this market, which is crowded with new entrants such as fintechs and other alternative lenders that tout fast approval and funding times for borrowers? Before, credit unions primarily competed with banks for home equity loans, but today, there are companies like loanDepot, Rocket Mortgage and others offering new home equity and HELOC products. Some promise approvals in mere minutes with borrowers receiving funds in as little as a week.

Providing Easier Access to Home Equity

At a traditional financial institution, getting approved for a home equity loan can take anywhere from weeks to months in some cases, resulting in a frustrating experience for homeowners. Instead, credit unions should focus on making it easier for homeowners to tap their equity without waiting weeks or months to get approved and access funds.

One of the ways alternative lenders and fintechs make it easier and faster for borrowers to get approved for a loan faster is by leveraging data. Using data to get a full view of a potential borrower’s finances supports faster credit decisions, and once approved, faster funding for the borrower. Online lenders are already doing this for consumer and small business loans. The same approach can be applied to home equity offers.

Credit unions already look at credit score data to make loan offers. However, a credit score does not provide the full picture of a homeowner’s finances. A homeowner also has unique property data, including their home’s value and the interest rate on their mortgage, that impacts the financial options that are available to them. Today, this property data is not easily accessible to a credit union looking to personalize financial recommendations and make the most relevant product offers, such as a home equity loan at a competitive rate, to the homeowner.

Open banking is changing this and making it possible to use that property data for home equity offers. For example, property data can be embedded and monitored within a credit union’s online and mobile banking, which gives homeowners access to actionable advice about their home’s value, home equity, borrowing power and pre-qualified offers – all on their preferred device. Not only does this benefit the homeowner, it also benefits the credit union.

With property data that can be embedded within digital banking, credit unions can make more personalized loan recommendations and offers faster, and at an attractive rate in the intensely competitive home equity space.

Competitive pricing is key, as homeowners will prioritize lenders that can deliver faster credit decisions and an affordable loan offer, otherwise they will seek financing elsewhere. After all, home equity loan offers vary drastically across the country – the average home equity loan offer across the nation’s 50 states is $83,872, while average loan offers vary from nearly $130,000 in Colorado to less than $31,000 in Iowa, according to data from LendingTree. Interest rates and monthly payments vary as well, even between local financial institutions.

By leveraging the right data, credit unions can make it much easier for homeowners to access personalized home equity offers at the best rate possible without waiting weeks to get approved or access funds.

The credit unions that rethink their approach to home equity lending will not only gain a competitive advantage during this current home equity boom, but also long-term. Homeowners are among the most valuable member segments for credit unions and owning a home is one of the most important ways members can build and maintain wealth.

Whether a homeowner wants to renovate, consolidate debt to boost their borrowing power in the future, or build up their retirement savings, credit unions can help them maximize their home equity to achieve their financial goals. Additionally, as housing prices eventually cool and supply chain issues are resolved, many existing homeowners may opt to buy another home or even build a new one. The credit unions that help these members manage and make the most of their home’s equity now will likely be the first institution these members go to for their next mortgage in the future. By educating members about the benefits of leveraging the equity in their home and engaging them with truly personalized loan offers, credit unions can foster deep and lasting relationships with homeowners.

Matthew Covi is Co-founder and CEO of Chimney, a New York, N.Y.-based provider of a financial platform for homeowners.