The 4 Ps of HELOC success

Pricing, products, promotion, and people are the keys to success for home equity lending, lending leaders say.

“Be competitive and original, and you’ll set yourself apart,” says Jeffrey Smith, chief lending officer at $725 million asset Freedom Credit Union in Springfield, Mass. “We try not to turn members away.”

At Freedom, that means offering interest-only home equity lines of credit (HELOCs) for the first 10 years, providing 100% loan-to-value (LTV) financing, and expanding loan terms for fixed home equity loans to up to 30 years. “You don’t see many delinquencies on these.”

On the promotion front, market to the right people in the right places via digital and traditional mailings, and social media, Smith says.

“People are the most important element,” he says. “You need to have the best people and processes in place to process your loans efficiently. Paperless is critical.”

The credit union was “a victim of our own success,” after experience years of 20% growth in its HELOC portfolio, Smith says. “Word of mouth spread quickly.”

Joining MSIC Partners, a credit union service organization (CUSO), MSIC Partners, provided much-needed support and significant cost savings with no drop in volume, he adds. “Our volume increased 37% in 2022, and another 63% in 2023,” he says.

One key question to consider is whether to charge origination fees for HELOCs, says Fred Campobasso, chief lending officer at $1.3 billion asset Great Lakes Credit Union, Bannockburn, Ill. Initially, he opposed doing so.

“It was a struggle philosophically, but it was a good business decision,” he says. “Members didn’t skip a beat, and now they have skin in the game. There’s still an expense if members don’t use the line.”

Great Lakes also found opportunities in serving a growing Spanish-speaking population. It now provides Spanish-language documents members can use for reference when obtaining HELOCs.

“It’s been very well received by these members,” Campobasso says.

One significant challenge has been liquidity management, he says. The credit union pulled three “levers” the credit union pulled to address this issue:

• Higher rates on 80% LTV loans (prime plus 1%) and 90% and higher LTV loans (prime plus 2.5%). This hasn’t affected demand, he says.
• Loan sales to generate liquidity.
• HELOC limits reduced from $500,000 to $100,000.

Another key to success: having lending staff process both consumer loans and HELOCs. “We constantly cycle through both,” Campobasso says. “It’s good for varying cycles of business. We’ve downsized through attrition, but not had any layoffs.”

Park View Federal Credit Union in Harrisonburg, Va., takes a “good, better, and best” approach to HELOC lending, says Kevin Nafziger, vice president of lending at the $360 million asset credit union:

• Good: The credit union has a CUSO that performs title abstracts and issues title insurance policies. It also conducts internal valuations, which sometimes can replace appraisals.
• Better: It uses the “What-if Simulator” from Equifax that simulates the impact of changes to a member’s credit score. If members agree to take certain actions to improve their credit scores, Park View Federal can charge a temporary lower rate for six months. The rate becomes permanent if members follow through and improve their credit scores.
• Best: The credit union’s hybrid HELOC has a fixed interest rate up to five years. Members pay a fee to lock in the rate. After five years, the balance reverts to a variable rate.

“It provides members protection on the interest rate, and it’s a good selling point for us,” Nafziger says.

“Know what your product is, and get it out there,” he adds. “Every product has some advantage. Make sure staff and members know about it.”

This panel of lenders addressed the 2023 Lending Council Conference in Denver.