Our Top Five Lending Predictions for 2024

Last year can be described as chaotic for community lenders. Predictable in some aspects, yet the industry has faced some unique challenges while attempting to manage balance sheets, margin compressions and regulation pressures.  A bank collapse crisis in March of 2023 highlighted liquidity challenges across the sector, the highest interest rates in decades led to massive decline in mortgage and refi volume, and many institutions dealt with substantial deposit migrations. However, these upheavals also challenged lenders to focus on new products and business strategies which will help banks and credit unions navigate potential economic volatility in 2024. 

‍

While community lenders have been under unusual strain since early 2022, economic and competitive pressures have led to a period of innovation and diversification. Forward-looking lenders are prioritizing strategic risk management, efficiency, and customer experience – all of which will put them in a stronger position to grow their businesses in 2024. Here are the five trends that will have the biggest impact on community lenders this year. 

‍

1. HELOANs and HELOCs will remain popular. 

‍

Although inflation has fallen rapidly, interest rates remain at a multi-decade high. The Fed is considering rate cuts in 2024, but rates will remain elevated for a long time to come. This has led to a collapse in mortgage originations and refi volume, while many homeowners feel stuck with their current mortgages (which limits the supply of houses and drives up prices even more). 

‍

These are several of the reasons why home equity lending products like HELOANs and HELOCs have become increasingly popular. With the total amount of tappable home equity at $19.7 trillion, homeowners want to put their equity to work – especially because many are planning to stay in their homes for longer. 

‍

2. Home equity lending is vital for lenders to maximize share of wallet 

‍

We’ve seen a shift in consumer behavior around the purpose for a cash-out home equity loan from primarily for home improvement purposes to now as a debt consolidation home equity loan. Mortgage rates peaked at around 8 percent in October, we predict they will remain high for the rest of 2024. In Q3 2023, the median price of a home sold in the U.S. was $431,000. Meanwhile, total household debt is just under $17.3 trillion (including $1.08 trillion in credit card balances) and the personal savings rate is well below pre-pandemic levels. HELOANs and HELOCs can help homeowners pay for renovations, unexpected expenses, debt consolidation, and many other financial priorities. 

‍

Home equity lending allows community lenders to provide much-needed financial support to customers while diversifying their businesses in a high-rate environment. 

‍

3. Liquidity will continue to be a central concern.

‍

At a time when community lenders face declining deposits, depressed mortgage originations, and rising delinquencies, it’s no wonder that liquidity is a major issue going into 2024. On top of all those developments, the banking crisis in early 2023 intensified regulatory scrutiny of lenders and frightened many customers. 

‍

However, liquidity challenges are no reason to panic. Community lenders can meet these challenges by developing contingency funding plans (CFPs); paying close attention to funding concentrations and other risks; and focusing on operational efficiency, superior borrower experiences, and product diversification.

The opportunities home equity loans create for lenders offer the ability to originate pledged assets and potentially provide higher yield margins.

‍‍

4. The customer experience will be a key competitive differentiator.

‍

Community lenders have never faced more competition (from larger institutions, but also from fintechs), which is why exceptional customer experiences are a key metric for financial institutions to activate. The lending process has to be accessible and fast, products must meet customers’ diverse needs, and robust engagement should be a core priority. 

‍

Efficient and user-friendly customer experiences won’t just improve retention – they will also increase lending productivity (by cutting down on the clear-to-close time), decrease cost of origination, and drive profitable HE/HELOC portfolio growth. 

‍‍

5. Digitization internally and externally will be a strategic necessity. 

‍

Less than 29 percent of Americans say they prefer to bank in person. This is one reason why fintechs are making significant inroads in the banking sector – customers demand the flexibility of digital services, and community lenders need to be capable of providing it. 

While fintechs compete with community lenders, they can also be critical partners in the development of digital infrastructure. The proportion of banks that regard fintech partnerships as important has shot up in recent years – a reflection of the fact that cost-effective digitization is a necessity, especially for community lenders. This trend is only going to accelerate in 2024 as community lenders pursue greater efficiency and seek to provide top-tier customer experiences.