How Credit Union Help Members Fully Leverage their Home Equity

Credit unions face a difficult housing market right now – how can they adapt while continuing to provide their members with the high-quality personalized service they expect?

Chris Meade
August 9, 2023
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This article was originally published on CUInsights.

Credit unions face a difficult housing market right now – mortgage originations have been plummeting for eight straight quarters, refi volume is down almost 45 percent year-over-year, and the Fed plans to raise interest rates even more this year after a brief pause. While the real estate market will likely stabilize by the end of 2023, credit unions must be capable of adapting to this industry-wide contraction and continuing to provide their members with the high-quality personalized service they expect.

The most effective way to do this is by educating members about their home equity options and helping them take advantage of these options with robust and streamlined digital services. For example, as mortgage and refi volume have collapsed, searches for home equities recently hit an all time high according to an article in a study conducted by the real estate platform RubyHome – a sign that homeowners are increasingly recognizing that their home equity can be used to meet a broad range of financial needs. At a time when economic volatility remains persistent and levels of indebtedness continue to climb, home equity can be used to put members in a more secure financial position than other forms of borrowing.

Members won’t be able to take full advantage of the value of their homes if they aren’t educated about how they can put that value to work. This is why credit unions need to simultaneously rethink the lending services they provide, improve communication with their members, and ensure that the mechanisms for fully leveraging home equity are operating as smoothly as possible.

HELOCs provide a vital financial lifeline

It has never been more important for credit unions to give members all the information they need to make healthy financial decisions. Total household debt in the U.S. is over $17 trillion (after rising by $148 billion in the first quarter of 2023), and a startling amount of that debt is in high-interest credit card balances: $986 billion. However, homeowners are sitting on plenty of tappable home equity, which is why HELOC authorizations have been climbing rapidly.

Many lending leaders entered 2023 uncertain of how to project home equity volume, citing market volatility and remaining demand after a record year (HELOC originations nearly doubled to over 400,000 from the first quarter of 2021 to the end of 2022). It’s clear that many homeowners are exploring how they can use the value of their homes to pursue their financial goals, which is why searches for home equity loans are at an all-time high. These goals could include everything from starting a business to covering student loan payments (which are set to resume in October).

HELOCs are giving members a way to work toward financial security amid a significant contraction in home prices and a period of economic turbulence, and they’re also helping credit unions make their business more flexible and sustainable. This is all the more reason why credit unions need to inform members about the full range of financial options available to them while making those options more accessible and user-friendly.

Make education a top priority

Credit unions have a responsibility to educate members on the ways they can save money and make their financial ambitions a reality – particularly at a time when the real estate market is cooling and high interest rates have made traditional home equity options like refi unattractive. No matter how useful HELOCs would be for your members, they can’t benefit from services they don’t know about. There are many ways home equity can be deployed to help members meet their financial obligations and objectives, and credit unions should have open discussions with members about the best options for them.

Home equity can be used for much more than home improvements – HELOCs can help homeowners consolidate high-interest debt, pay medical bills, make investments, fund large purchases, and meet a range of other financial needs. It’s especially important for credit unions to educate members about these options as their competitors shift toward the authorization of HELOCs as a core business function. Competiscan reports that the volume of email marketing which informs borrowers about HELOCs jumped by 158 percent from Q4 2022 to Q1 2023 – a reminder that financial institutions that fail to provide this information will fall behind.

It isn’t enough to inform members about the full array of home equity options – credit unions also have to educate their teams and oversee an internal orientation toward HELOCs and other innovative financial resources for borrowers. This doesn’t just mean a shift in customer service and communications – it requires the development of more efficient lending operations, which will attract and retain members by providing exceptional experiences.

Member experience is critical

One of the most pervasive misconceptions about home equity lending is the idea that it’s a cumbersome and slow process – many customers expect that it will take weeks (or even longer) to be approved. As credit unions increasingly partner with fintechs, this is no longer the case. For example, some platforms can streamline the approval process and allow lenders to go from application-to-close in a matter of hours.

There has been a fundamental transformation of consumer preferences and expectations in the banking industry over the past several years: 78 percent of Americans say they prefer to bank digitally, and the quality of digital experiences has become a major competitive differentiator. This is why credit unions should always be looking for opportunities to automate their operations, which increases speed and efficiency, improves communication with members, and frees up staff to focus on member needs.

Credit union leaders often assume that digitization is cost-prohibitive – they imagine making large investments in IT staff, research and development, etc. But this is antiquated thinking – fintech partnerships can help credit unions digitize and ultimately save them money by eliminating slow and error-prone manual processes, increasing lending volume, and retaining members with top-tier digital experiences.

Once a credit union is capable of offering excellent digital experiences, it’s necessary to get the word out with email marketing, social media platforms such as LinkedIn, and other forms of direct member outreach. When credit unions take a deeper look at their total addressable market, they will discover that there are vast untapped business opportunities – even in a difficult economic environment.

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