How Citizens Bank Became the U.S. Home Equity Leader

Citizens Bank is making big moves in home equity lending, not only growing its volume to record levels for two consecutive years, but also using the product as a way to start relationships with prospective customers in new markets where it has no branches. Its FastLine digital portal, which simplifies and speeds up the home equity process for borrowers, also allows Citizens to compete effectively against fintechs and other nonbank lenders making forays into the booming home equity sector.

The home equity sector is hot, and Citizens Bank has been basking in the glow.

The Providence, R.I., bank posted record volume in 2022 and ranked as the nationwide home equity leader by multiple measures.

Home equity loans and lines of credit went quiet during the long period of low mortgage rates, but activity rebounded as interest rates climbed and home sales plummeted.

Though many financial institutions benefited from that lift, the $221.9 billion-asset Citizens had positioned itself for success with an initiative designed to make the HELOC process faster and easier for borrowers. A new digital portal called Citizens FastLine — which debuted in mid-2021 — proved to be a major factor in helping the bank expand its market share.

Citizens Bank’s Outsize Success in Home Equity Lending

Citizens, which is the 17th-largest bank in the country, topped several home equity rankings compiled by Inside Mortgage Finance for 2022.

It was No. 1 in funded home equity lines of credit and closed-end home equity loans, finishing the year at $6.78 billion in funded credit, an increase of 31.4% over 2021. In addition, the bank was No. 1 for new HELOC commitments, which are lines approved but not necessarily drawn on immediately. Citizens made $10.1 billion in commitments (also referred to as originations) in 2022, an increase of 26.3% from the year earlier.

For Citizens, the volume of home equity originations in 2022 was a record, on top of an already record year in 2021.

Adam Boyd, executive vice president and head of home equity lending at Citizens, says home equity demand has remained very strong in 2023 so far — “and that’s despite the fact that we’ve seen north of 500 basis points of rate increases.”

He says people are hanging on to primary mortgages with historically low rates but have high home equity to tap, a combination that has created “the perfect storm.” (In mid-June, the Federal Reserve held rates steady but made it clear the hikes would resume if inflation failed to cool further.)

In an interview with The Financial Brand, Boyd discussed the general outlook for home equity, the FastLine initiative, a special HELOC program for underserved borrowers called GoalBuilder, and why artificial intelligence plays no role in assessing creditworthiness for these loans at Citizens — and won’t for the foreseeable future.

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Strong Growth in HELOCs Expected in 2023

Boyd isn’t expecting another record year for home equity lending. He cited diminishing demand industrywide and tweaks to Citizens Bank’s credit standards and pricing.

Nonetheless, he believes 2023 will be very strong, despite perceptions in some quarters that home equity lending was a short-term window of opportunity. He predicts originations will continue to be way ahead of the levels seen from 2012 to 2019.

“There’s staying power here,” says Boyd.

There’s been some pullback as rates have risen — HELOCs are variable-rate products — but borrowers skew wealthier, he says. “So it’s discretionary borrowing, and I think there’s actually some potential demand that’s sitting on the sidelines.”

This lending category is also benefiting from an increase in home values. “Tappable equity” — the calculated equity available for securing additional credit while maintaining a loan-to-value ratio of 80% or less on the home — is the key. Boom times in first mortgages ended when the Fed began hiking rates in earnest, but home prices kept rising, in part because of a shortage of housing supply. This created a surge in tappable equity.

U.S. Home Equity Statistics (1Q ’23 vs. 1Q ’22)

• The number of HELOC originations nationwide totaled 298,694 in the first quarter, up 7.4% from the same period a year earlier. The number of home equity loans totaled 263,728, up 30%. (Both numbers are reported one quarter in arrears.)

• The total outstanding balance of drawn-down HELOCs was $300.94 billion, up 10.38%.

• The total in available credit lines was $740.08 billion, up 9.7%.

• The average HELOC balance per borrower was $58,294, up 4.72%. The average credit line per borrower was $112,407, up 3.93%.

Quarter to quarter changes, from the quarter ended Dec. 31, 2022, compared to the end of the first quarter, were less dramatic than the year-to-year comparisons, or showed decreases. First-quarter HELOC originations, for example, fell by 26.37% from the previous quarter.

Source: TransUnion

Demand has fallen in some markets, notably in the West, and there’s been some decline in home prices this year. In the first quarter of 2023, homeowners who have mortgages saw their equity decrease by $108.4 billion versus the first quarter of 2022, according to CoreLogic. That sounds like a huge hit, but it’s actually a slip of only 0.7%. On top of that, CoreLogic’s Home Price Index Forecast suggests that home prices will rise by 4.6% from March 2023 to March 2024.

“Largely, home values have held up pretty well, with the exception of a handful of markets, so we continue to lean into the home equity business,” says Boyd, noting that Citizens has very little exposure to western markets. “We feel like the health of the consumer continues to hold up really strong.”

Factors like that feed Boyd’s optimism — though he says Citizens continues to keep a close eye on the outlook and makes course adjustments.

Home price trends are a tide that, even with some ebbing, has lifted the boats of many home equity lenders.

Taking the Pain Out of the Home Equity Process

The bank’s website says that consumers who use Citizens FastLine can go from application to available HELOC in as little as two weeks. “We’ve cut our origination cycle times in half,” says Boyd.

In the course of adopting FastLine, Citizens has seen its HELOC Net Promoter Score rise steadily into the mid-80s. (Anything in the 80s or beyond is considered the top range of scores.)

The reputation and word of mouth that accompanies this boost is helping to drive demand among both existing customers, which has been Citizens’ main focus for HELOCs, as well as among prospects.

Citizens FastLine doesn’t amount to “a single silver bullet;” rather, it has gone through several iterations, so there’s been a steady stream of improvements to the HELOC process, according to Boyd. This includes a much shorter application that some can finish in just minutes.

Citizens Already Has Their Data:

A key realization came early on, that most of the bank's HELOCs — about nine out of 10 — are originated on behalf of people who already have some type of relationship with Citizens.

“We have data on those customers based on their existing deposit relationships and other accounts,” Boyd says. “So we dramatically simplified the application experience, leveraging customer data that we already have. We reduced the number of fields.” Many items that must be verified via data that used to be supplied manually using document collection can now be obtained digitally.

For many people who are already customers of the bank, the number of fields that have to be filled in to complete the application has been slashed in half.

Another pain point in the old HELOC process was the traditional real estate appraisal, involving a physical visit to the home. Citizens changed its process to allow the use of an alternative to appraisals — specifically, the automated valuation model. Reports obtained through use of an AVM rely on data points such as sales history, tax assessment data and “comparables” (which is the sales history of similar properties). Much of this can be pulled from databases, eliminating physical visits from the process.

Essentially, FastLine is all about the upfront customer experience.

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On the Credit Side of Citizens Bank’s HELOCs

Citizens uses a two-step approval process, the first of which is preliminary and partly automated, but artificial intelligence plays no role in the final credit evaluation.

“We don’t write a single HELOC without an underwriter manually reviewing the file.”

— Adam Boyd, Citizens Bank

Some additional automation could, in time, be added to further speed up the process, Boyd says.

“But I don’t see us granting a final credit decision without an underwriter review any time soon,” he says. “That’s not something that’s currently on our roadmap. I’m all for anything that will make the borrower experience simpler and easier, but I’m not willing to do it at the expense of safety and soundness.”

He says the bank can produce originations at scale without going the AI route — as its top rankings for 2022 home equity volume illustrate.

Boyd says that it’s important to make sure applicants belong in home equity credit and that they can handle it. The standard term for a line of credit to be available is 10 years (the “draw period”) and the borrower must pay off the line within 15 years of the end of the draw period. At Citizens lines can be paid interest only or interest and principal during the draw period.

“That’s a big financial commitment for the borrower on the other end,” says Boyd, “and this product is a big thing for the bank as well.” In 2022 home equity credit represented about 19% of Citizens’ total retail lending portfolio.

Citizens GoalBuilder: HELOCs for an Underserved Segment

An offshoot of the HELOC effort is Citizens GoalBuilder, a program designed for low- and moderate-income homeowners.

The program is meant for applicants with a FICO credit score in the range of 620 versus around 760 and above for the mainstream HELOC program. The traditional HELOC program generally allows a combined loan-to-value ratio of 80%, or 85% in some cases, while GoalBuilder will permit the combined loan-to-value ratio to rise as high as 97%. (Combined loan-to-value ratio includes both primary and secondary credit liens.)

Credit limits are smaller. The traditional HELOC can range anywhere from $17,500 to $1 million, or even higher if the applicant has a deep deposit relationship with the bank. GoalBuilder offers credit lines of $5,000 to $25,000.

Boyd says that the product was introduced in late 2020 and began to take off in earnest in 2021. It represents only a small portion of Citizens’ HELOCs, though it is growing.

“We saw a gap across the industry in meeting the needs of those borrowers,” says Boyd. “They had a need for credit and owned a home but were gravitating towards higher-cost forms of credit.” He says the product was a chance to demonstrate the bank’s commitment to local communities.

GoalBuilder HELOCs are priced on a prime rate plus a flat rate basis (3.25%, discounted to 3% for Citizen depositors who set up an autopay plan). By contrast, the traditional program’s rate pricing is based on evaluated risk.

“The flat pricing structure for GoalBuilder provides an advantage for those borrowers,” says Boyd. “We’ve often seen times when customers have been able to refinance out of debt that’s priced as high as 30% into GoalBuilder, which is priced at about a third of that APR. For these customers it’s a really significant interest expense savings.”

Read more about Citizens Bank:

Citizens Offers HELOCs in New Markets, Takes on New Competitors

To date Citizens Bank has generally offered HELOCs in its branch footprint, which encompasses 15 states and Washington, D.C. But it has been gradually expanding the program. Currently applicants in 29 states and Washington are eligible.

Boyd characterizes the stretch to new areas as an effort both to test how efficiently the home equity products can be originated and whether they work as a starting point for developing deeper banking relationships with new customers who aren’t near branches. (Citizens has been expanding its deposit gathering efforts outside of its market area through its direct banking unit, Citizens Access, which launched in 2018.)

Beyond competing with other banks doing home equity lending in those markets, Citizens faces growing competition from newer entrants.

“We’ve seen the emergence of nonbank HELOCs, both from fintechs as well as nonbank mortgage lenders who are now looking to replace the mortgage volume that eroded in the current rate environment,” says Boyd.

The fintechs especially play up the user-friendly customer experiences they frequently offer, he says, underscoring the importance of FastLine as a way for Citizens to be competitive. Often the rates from the fintechs don’t compare to those a bank can provide, he notes.

On the other hand, hungry bank HELOC lenders have been competing aggressively on rates. But Boyd says they aren’t competitive in terms of turnaround of applications.

“So, I think the space we’ve carved out is the best of both worlds,” says Boyd. “You get the borrowing experience you might expect from a fintech paired with competitive pricing enabled through a bank’s balance sheet funding. That has allowed us to find a space where we can live and compete effectively.”

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