Trends, best practices and technology for electronic mortgages, HELOCs and other digital assets

Although the impact of the pandemic is now largely behind us, digital lending solutions will continue to play a major role in our recovery. And despite rising interest rates and declining mortgage volumes, digital lending remains a high priority for lenders.

Coupled with this is a drop in mortgage refinances and homeowners enjoying high home equity gains, making this an opportune time for lenders to focus on home equity lending. Successful lenders are using this market downturn to positively impact and further differentiate their customer experience by continuing to invest in technology and move into other product areas, both in first mortgages and mortgage margins. home equity loan (HELOC).

Wolters Kluwer Compliance Solutions hosted a webinar “Trends, best practices and technology for electronic mortgages, HELOCs and other digital assetsdedicated to this subject with a panel of experts:

  • Simon MoiréVice President, Banking Compliance Solutions for Wolters Kluwer served as moderator in this roundtable.
  • Craig FocardiSenior Analyst, Banking for Celent, a leading technology-focused research and advisory firm for financial institutions worldwide.
  • Rick ShargaExecutive Vice President, ATTOM, a leading provider of comprehensive real estate data for businesses in the real estate, mortgage, insurance, finance and government markets.
  • James Milneproduct manager for Rocket Mortgage, an early adopter of digital asset transactions and the first lender in the nation to use eNotes to complete a Ginnie Mae-backed loan.

Focus on technology-based growth

According to Celent, a leading research and advisory firm, financial institutions of all sizes are reporting rapidly expanding technology budgets. In its most recent survey of IT spending and digital priorities in North America, 63% of respondents said investing in the digital lending experience was the top priority in 2022.

The survey also indicates that budgets will increase by a larger amount in 2023 “to reflect the growing appetite for technology-enabled growth.” While IT spending can be cyclical, especially when volume and earnings are down, technology investment as a percentage of origination spending has more than doubled over the past decade.

That said, who is driving the digitalization of mortgages? The production and capital markets parts of an organization play a key role in driving adoption and must work together to create value. The production side of the business has the lead role in terms of system development and operational and process changes, resulting in additional operational benefits and increased customer satisfaction – two critical elements in moving this process forward. Mortgage lenders are also seeing upside benefits with the potential increase in value of the eNotes they sell in the secondary market, which is why capital markets should also be involved in driving these initiatives within of an organization.

Benefits of creating digital HELOCs

According to ATTOM, a leading provider of comprehensive real estate data, mortgage lending recorded the largest annual decline in the first quarter of 2022 since 2014. And the results for the second quarter of 2022 are even more dramatic, down 14% from in the first quarter of 2022 and 41% compared to a year ago. In addition, Mortgage Bankers Association forecasts that the number of refinance loans will decline from around 6,400 last year to around 2,100 in 2022, resulting in a two-thirds drop in loan volume from the side of refinancing due to rising interest rates. Conversely, ATTOM reports that HELOCs grew nearly 28% year-over-year — or about $50 billion in home equity lines of credit — during the first quarter of 2022.

So while it may be more difficult to refinance your first mortgage, the double-digit appreciation in home value over the past two years has allowed homeowners across the country to gain new wealth through the equity in their home. The the wall street journal reports that homeowners are currently sitting on a record amount of home equity – around $27.8 trillion in the United States. There are two reasons for this increase in home equity. First, baby boomers are aging in place and not selling their homes as they often did in previous years. Second, many homeowners are now in what economists call “rate lock-in.” This means homeowners have a 30-year fixed rate loan with a low interest rate and don’t want to jump into a new loan with a much higher interest rate.

Mortgage lenders are in the lending business, and with the explosive growth of HELOCs, this is an area where we expect to see more lenders participating. Banks and credit unions are stepping up efforts to grow their home equity businesses now that interest rate increases have made refinancing by withdrawal less attractive for millions of borrowers.

Digital lending solutions, such as Wolters Kluwer’s OmniVault for Real Estate Finance, allow financial institutions to create digital HELOCs as a digital original rather than just a PDF or paper document. Like eNotes, digital HELOCs can be stored, managed, and easily transferred to and from an eVault on a single platform, providing the same user experience and visibility across all asset classes. And there is growing recognition of the benefits that digital lending solutions can bring to the mortgage space, as lenders leverage the concepts of digital HELOCs, eMortgages and OmniVault technology, which can help them secure and to manage their eAssets on a single platform.

Are you an early adopter or a follower?

Banks, credit unions and, to some extent, mortgage banks are turning to home equity loans. While most HELOCs are held on balance sheets, there are early signs that a secondary market is developing for these products. If this materializes, the ability to offer digital HELOCs will become a must in the race for lenders to differentiate their customer experience and stay competitive. Digital HELOCs allow clients to access their capital with a speed and ease not currently available with standard HELOC products offered by lenders. And financial institutions that don’t adapt to this market preference for digital HELOCs risk missing out on a growth opportunity in a challenging lending environment.

For more information on effective digital lending programs, watch our on-demand webinar, “Trends, best practices and technology for electronic mortgages, HELOCs and other digital assets and review Wolters Kluwer’s digital mortgage solutions, including the OmniVault solution for home financing.