Are banks ready for an uptick in HELOC applications?

Rising home prices and a market in which many homeowners are reluctant to sell or refinance means HELOCs will continue to remain an attractive loan product. Especially for younger borrowers, who are more likely to be both current and future users of home equity lines of credit than either Gen-Xers or baby boomers.

In a recent survey, TD Bank found that 35% of the millennials said they would consider applying for a HELOC versus 15% of Gen-Xers and 4% of baby boomers. Since they already have a relationship with their customers, banks are well-positioned to engage with these mortgage customers and offer them an attractive home-equity product.

But do banks really understand the needs of these customers? We decided to find out, and surveyed a nationally representative group of consumers who had secured a HELOC in the past 12 months. We asked them about their expectations, experiences, and preferences throughout the lifecycle of the loan: from the initial shopping for the product, applying for the loan, and finally through the fulfillment process to the closing date. We also studied utilization of the loan: from the initial draw, through additional draws and repayment, and right up until the point where the customer makes the decision to pay down the remaining balance and close the line. Throughout this process we asked these consumers which channels they would prefer for engagement and interaction with a lender.

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When looking for a HELOC product, younger borrowers are looking for guidance. The group aged 18-25 would actually prefer to have a phone call with a banker than to research or chat online. Older borrowers (26-59) much prefer to research online — possibly because they're more experienced. Banks are well positioned here since they can engage with these younger customers and offer to guide them through the HELOC application process. This is an important phase for millennials, and an opportunity for banks to nurture customer loyalty.

Convenience is key to the application phase, mirroring an overall trend being driven by innovative players such as Rocket Mortgage. In general, we found that the older you are, the more you prefer going into a branch to apply for a HELOC, while the 18-25 group equally prefers the phone to the website or online chat.

The banks' website is preferred by all age groups for submitting and, most importantly, tracking the HELOC application. For closing, in-branch and website are the two preferred channels.

Most of our respondents told us they want to receive HELOC offers via email. Website was the next popular choice, followed by phone and online chat. We found a striking disparity between what consumers expect and what banks can actually deliver. 83% of customers expect to receive the money they applied for within a month, whereas recent ICON Advisory Group data indicates that only 17% of customers actually get access to the money within 30 days.

This "turnaround gap" — the difference between how long customers expect to wait to receive their loan from the date of application, compared to what banks say is possible — is an area where banks can innovate to close more HELOC business. More than half of the respondents aged 18-45 said they would pay an additional quarter percentage point (0.25%) to close within one month. So why aren’t more banks including this possibility in their offer by restructuring their product offering?

The way that banks transact with consumers reflects the trends we're seeing in other retail sectors: namely, omnichannel. Consumers have many channels to choose from, and distinct preferences on which channel to use throughout the various phases of the loan application and fulfilment. It's therefore essential to match the right engagement channel to the customer as the marketing and processing teams determine their HELOC business development strategy.

The survey results highlight the varied ways different kinds of customers want to engage with their bank. What banks must do is make it easy for them to choose the channel that works for them, and then make it easy to switch to a different channel without starting over again. This "pick-up and resume" capability enables a customer to start the HELOC application online and then walk into a branch to discuss questions and complete the process.

It's clear that tomorrow's customers will be won and retained less on interest-rate decisions, and more on "intangible" factors such as knowledgeable and helpful customer-service agents who are empowered to discuss personalized loan products across any of the bank's channels. Are you ready?