Success in Home Equity Hinges on Quality (and Fast) Customer Experience
By Steve Cocheo, Senior Executive Editor at The Financial Brand
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Executive Summary
- Why do some homeowners with lots of tappable home equity go for credit cards or unsecured personal loans when home equity credit would likely be cheaper? Because they find many traditional lenders’ processes mysterious and painful.
- Lenders who want a bigger slice of the home equity pie need to take an applicant’s-eye view of their processes, especially what they offer digitally.
- One expert says the CX may be more important than the product design.
Beth Robertson’s day job includes evaluating mobile and online banking services, but she also has her own financial services needs. While running a recent project on digital services in mortgages and home equity lending, she decided that she would also look into home equity credit herself.
The usual modus operandi for her company, Keynova Group, is to open actual accounts with financial providers, or to at least take relationships as far down the road as possible. This enables the firm to evaluate and compare features and approaches at the same level as customers.
This time, Robertson, managing director, was adding a bit more realism by actually shopping for her own needs.
Based on home equity product features, the analyst settled on a particular lender. She found that while she liked what was on offer, using the lender’s digital interface was painful.
“I tried repeatedly to complete the application digitally and kept encountering problems doing so,” says Robertson. Frustrated, she finally called the lender’s toll-free number for help.
Being in the midst of an evaluation of digital services in home credit, Robertson had more than a chuckle over what happened next.
“They told me that it was a lot easier to apply over the phone,” and that’s how Robertson wound up applying for the loan.
Want more insights like these? Check out Attune’s content hub: Connected Banking Starts Here: Modernize Lending, Onboarding & Cross-Sell
Is Friction Killing Your Home Equity Potential?
Evaluating such friction is part of Robertson’s job, so adding the element of actually wanting the service under study provided extra impetus.
She found, for example, that some major players who offer home equity credit don’t make it easy to find the product on their sites. In the previous edition of the project, for example, the only way she could navigate to the home equity product offered by Rocket Mortgage was via a link at the end of a blog about debt consolidation.
It’s doubtful most customers would be so persistent. In that lender’s case, Robertson says, a major marketing point of distinction is ease of online application for credit, and last year its home equity digital interface clearly wasn’t ready. During her latest research, the company’s online application was in place and finding the product had become much easier.
As we described in a recent roundup on The Financial Brand, the amount of tappable home equity credit is huge, and use of this asset by homeowners is expanding.
Yet some of the potential growth available to lenders may be falling by the wayside, ceding share to other credit products that may be costlier but are perceived as painless to obtain.
A recent blog by Experian about home equity lines of credit points to the essential problem: “HELOCs are often viewed as complex, risky and time-consuming, especially compared to the convenience of credit cards or personal loans. These perceptions persist despite mounting evidence that HELOCs offer a significantly lower cost of borrowing over time. One missed payment on a credit card can result in fees and compounding interest far exceeding a comparable slip on a HELOC account.”
Lenders of all sizes have moved into home equity credit, with some community banks, for instance, having made a business of it for decades. But the market is changing and remaining competitive requires a bigger ante today.
Courtesy Keynova Group
“Fintechs and independent mortgage banks have disrupted this space, totally changing how the product is structured and sold. But what we tend to overlook, often, is how they’ve disrupted the borrower experience,” says Ken Flaherty, senior manager, retail lending, at Curinos. “They’ve proven that you don’t need to have a brick-and-mortar branch for someone to open a home equity product.”
In addition, says Flaherty, the incursions by the nonbanks, including companies like Figure, Rocket Mortgage and Guaranteed Rate, illustrate that home equity success doesn’t require having other relationships with a consumer and then cross-selling them into a HELOC or a home equity loan.
Newer product features are an important competitive factor — options like interest-only payments, for example — but Flaherty says CX is a critical element. The internet is a leveler among providers and people seek ease, and speed.
Read more:
- How Today’s Student Loan Mess Could Choke Tomorrow’s Loan Pipeline
- How a California Credit Union is Growing HELOCs with a Fintech Partnership
- Inside Synchrony’s Home Brewed, Six-Second Credit Approval Process
Assessing the Elements of the Home Equity Borrower Experience
“Are you going to make me drive somewhere to close the home equity deal? Or can I sit there on my couch and do it all from my iPad, and never have to leave the house to complete this transaction?,” asks Flaherty.
The borrower experience can entail multiple facets, including the digital interface, delivery of the credit product, and the journey in between.
Rocket Mortgage offers AI-power “Rocket Assist” chat for home equity customers with questions. (Graphic courtesy of Keynova Group.)
Flaherty points out that banks and credit unions typically offer better rates for home equity credit than fintech lenders. However, with some exceptions, such as Citizens Bank’s FastLine HELOC product, going from application to approval and availability of funds can take weeks. Fintech lenders, on the other hand, tend to charge more but deliver sheer speed.
Keynova’s Robertson says that only one out of five of the major bank and nonbank lenders her study covered offer accelerated HELOC closing and funding, for example. That’s versus promises like this one on Figure’s website: “Approval in as little as 5 minutes. Funding in as few as 5 days.” (Granted, that’s subject to a long footnote’s provisions.)
Flaherty points out that often people have a problem that requires resolution — say a bad roof that needs replacement — and they need the fast delivery of funds that fintechs and mortgage firms often seem more able to deliver. Citizen’s FastLine promises funds in as little as two weeks.
Robertson explains that a factor in the early part of the customer experience is the issue of credit checks. She says that lenders like Rocket Mortgage offer a soft credit pull within the flow of its digital application. This allows the prospect to determine if they can qualify without impacting their credit record. Two out of three of the lenders in Robertson’s review now offer an initial soft pull.
Read more: Are Consumers Buried Under Too Much Debt? A New Report Says Maybe Not
Building in Communication and Status Updates
Communication in the digital channel is important at all stages, according to Robertson. She says lenders that provide educational content along the way stand out against those who don’t.
Something that applicants want to see in the digital interface is a clear idea of where things stand in the loan process. This is especially important for a traditional home equity lender that operates with a documentation-heavy process versus lenders who tap methods like automated valuation models in place of live appraisals.
Courtesy Keynova Group
The point where documents and digital process converge is an important junction. Robertson says status tools should show clearly what documents have been uploaded and accepted, as well as what’s outstanding. Applicants want reassurance that they are taking care of their end of the process.
One lender Robertson evaluated failed miserably at this.
“Their status tool didn’t indicate when I’d uploaded something, and they kept sending me emails to request things that were not in the list of documents required,” says Robertson. She found the lender’s process disjointed and much more manual than the digital experience promised at the outset.
On the other hand, she found that other lenders had strong communications.
“Not only do they have really good information on their site, but they’ll offer chat support or alert confirmations to let you know that you’re on the right track with them and that they’re getting the information they need,” says Robertson.
Read more: Want to Lend to Low-Income, High-Risk Borrowers? See What This Fintech Does
