How a California Credit Union is Growing HELOCs with a Fintech Partnership
Valley Strong Credit Union taps a fintech partner's superior customer experience and streamlined back-end to create a more competitive -- and much faster -- entry for home equity lending.
By Steve Cocheo, Senior Executive Editor at The Financial Brand
Before he stepped up to become president and CEO at Valley Strong Credit Union, Nick Ambrosini spent years as CFO both there and at another credit union. He says a legacy of his time as a numbers guy is his preference to have options in financial technology, rather than a one-size-attempts-to-fit-all offering. He says this trait carries over to his own search for appropriate credit choices.
That attitude helped lead Ambrosini to a partnership strategy for home equity lending that provides Valley Strong’s members (and potential members) with a flexible product — and gives the credit union a adaptable structure that can fire on different cylinders depending on changing needs.
Along the way, Ambrosini says, he’s discovered that going with an outside partner can deliver more effectively than home-grown. While he’s proud of how the credit union itself kept up with the state of the art in banking technology and product design, in the increasingly competitive home equity credit space he found a partner could offer both superior technology and customer experience that has slashed the turnaround time for borrowers to receive cash. The credit union can now go from application to funded loan in as little as five days, much better than Valley Strong’s own program could deliver.
In addition, the program leads to fuller utilization of home equity lines of credit — a common challenge for some HELOC lenders, because institutions must reserve capital against lines even when they are not completely used.
Valley Strong has $3.9 billion in assets. The credit union’s partnership with Figure Lending, part of Figure Technology Solutions, has been going since 2020, chiefly in the HELOC area. In that time, the effort has produced around $2 billion in loans of all types, chiefly HELOCs, according to Ambrosini. (Figure Technology Solutions became the parent of Figure Lending in early 2024 after its activities were split out from those of Figure Technologies.)
"The HELOCs have actually performed better than our in-house originations," says Ambrosini. As a result, Valley Strong has recently decided to sunset its traditional home equity product line in favor of the joint effort with Figure.
Figure’s approach to the HELOC market can be described as a hybrid. The company is a fintech, not a chartered financial institution, and makes some loans directly. The majority of Figure’s volume comes from partnerships with banks and credit unions, with about 20% of Figure’s HELOC volume coming from its direct lending efforts.
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Fitting a HELOC Product to a Prospect Base
"Credit unions typically pride themselves on being very traditional, conservative lenders," says Ambrosini, "but we’re a little bit different."
He explains that the credit union’s retail footprint is in the California Central Valley, an 18-county area historically strong in agriculture.
"It’s a very blue-collar type of environment, with lower income," says Ambrosini. Valley Strong is a designated CDFI — community development financial institution.
"We lend in some spaces that are more near-prime, and tend not to be as much of a super prime player as a lot of other institutions," Ambrosini says.
The credit union’s partnership initially involved making HELOCs using Figure’s front-end and back-end technologies. The front end allows members to choose among different options — the feature that attracted Ambrosini — and then to settle on the loan terms they like once they find an attractive combination. Among the features they can choose are term, payments, and origination fee.
On the back end, Figure uses a combination of technologies to speed up aspects of the usual HELOC lending process. This includes underwriting, title searching, regulatory compliance and other lending processes. For example:
• Proprietary algorithms are used to verify the applicant’s stated income. The income verification is the core of the underwriting model used by Figure. In part the algorithm relies on accessing bank accounts to verify income information. Underwriting looks at income as well as debt-to-income ratios.
• Instead of requiring title insurance, the company uses an electronic lien search algorithm to identify existing property liens.
• In place of requiring a full property appraisal for the HELOC, the company uses a property valuation provided by an automatic valuation model (AVM). Where an AVM isn’t available, alternative procedures apply.
• Credit scores are calculated using the FICO 9 format. Among its features are that it counts rent payments, where they are reported; disregards collections items that have been fully paid subsequently; and gives less weight to medical debt. FICO 9 scoring can sometimes produce higher scores on applicants.
Artificial intelligence is chiefly used for processing, including the "stare and compare" stage where the technology verifies that information matches from document to document. This saves human labor and time. AI is not used in underwriting, at present.
Michael Tannenbaum, CEO at Figure, says many of the banks and credit unions that work with the company use the fintech’s product and process for a first pass at a HELOC. If for some reason the loan doesn’t qualify for the automated process, they will put the application into their traditional HELOC process. Such situations can include a property that has unusual features or a borrower who is self-employed. In some cases, though the fintech evaluation may indicate that a turndown is in order, the financial institution’s own past experience with a borrower may argue that they are a reliable risk.
The destination of a loan that goes through Figure’s technology varies according to the type of arrangement the bank or credit union has chosen. The loans may be sold to other institutions in packages or they may be securitized in rated asset-backed securities issued by Figure. The loans may also be sold as packages to private credit investors, such as hedge funds. (There are other arrangements, including portfolioing the loans, which we’ll come to.)
For many depository institutions, HELOC borrowers’ utilization of the line can be an issue. The structure Figure uses requires that the borrower draw down completely on the line at inception. They can pay down the draw and draw on the line again, during the permitted draw period. (During the subsequent mandatory repayment period of the loan, no further draw is permitted, which is standard HELOC lending practice.) Requiring the up-front draw helps make securitization possible, while technical features in the deal structure address the ability to pay down debt and re-draw later.
Tannenbaum says the average drawdown seen on the lines is around $75,000.
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How Valley Strong’s Use of Figure Has Evolved
Ambrosini explains that, depending on needs at a given time, the credit union has bought loans originated through Figure, which gives Valley Strong an opportunity to offer the applicant the opportunity to join the credit union. This is common recruitment practice by credit unions when originating car loans through indirect auto lending programs through car dealers. Valley Strong has also sold portions of loans it generated through the fintech to other credit unions as participations or into securitizations Figure sets up.
Currently the credit union is keeping most loans originated via Figure in portfolio.
The ability to sell the loans is supported by the standardization that the Figure program provides, according to Ambrosini. "With an in-house HELOC program, every bank and credit union has different guidelines," he explains. "Unless your program has a lot of scale, there hasn’t been an asset-backed security market for depository institutions in this space."
Ambrosini says that Figure is doing five to eight securitizations annually, which provides multiple opportunities for participating lenders to sell the loans. While Valley Strong has securitized packages of its own auto loans and one for unsecured personal loans, HELOC was a tougher nut to crack in securitization.
"The production is standardized, so if one bank is doing it or a credit union is doing it, it’s all in the Figure process," says Tannenbaum. "It’s very similar to Fannie Mae in that way, with standardized production process, underwriting, and all of the representations and warranties. So it’s a very standardized world."
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Going All-In on Fintech Partnership
When Figure began offering its technology on a white-label basis, Ambrosini decided to adopt that as the credit union’s only HELOC option.
"It’s been a huge game-changer," he explains. "The early feedback we’ve received from our members is that they love the experience, having everything at their fingertips in order to make their decisions."
A new option for institutions is Figure Connect, which puts together investors and institutions selling HELOCs so loan production can be tailored in advance to what both lender and investor wish to deal in. This option enables forward commitments for loan production volume that the investors have agreed to purchase.
Tannenbaum says this option gives institutions a way to produce originations of HELOCs with off-balance-sheet funding.
"Some institutions want more home equity because they like the asset," says Tannenbaum. "Others don’t and we offer them the flexibility to sell. And you can change your strategy over time, in case the institution’s balance sheet needs change."
Sellers can choose between two options. One is correspondent lending, where the institution extends the credit through its own lending license and then sells. Alternatively, a simpler process is serving as a broker, making the loan in Figure’s name, with the fintech pulling it in for securitization.
