By David Carlson
Home equity lines of
credit (HELOCs) are again becoming a relevant strategic instrument to accelerate
loan growth. While consumer interest in HELOCs has revived and will likely continue
growing, many financial institutions are struggling to capitalize on these
opportunities.
2017 began with several
key housing and economic indicators pointing favorably to a continued resurgence
in HELOCs. However, despite these decidedly HELOC-friendly indicators, HELOC
growth is proving to be an uphill climb. In the first quarter of 2017, the
dollar volume of HELOC originations was at a three-year low. The pace quickened
in Q2 but origination growth still lags behind 2016 performance. It’s not that community
financial institutions aren’t trying. Many are devoting considerable resources to
gain traction with HELOCs, only to have their efforts rewarded with lackluster results.
If you ask an officer at one
of these under-performing institutions to explain their financial institution’s
subpar HELOC results, they might point you to a long list of legitimate frustrations. Often, these are valid concerns; however, a
select number of community financial institutions are successfully identifying
and attracting new borrowers through the use of innovative strategies. The
results – significant growth through increased loan volume and enhanced income.
What’s the differentiator?
Why are some financial institutions succeeding while others flounder?
Research shows successful
execution of a HELOC strategy requires attention to three key areas: (1)
Process, (2) Product and (3) Promotion. While many financial institutions may believe
they have these elements in place, most do not have a formal foundation to drive
actual results.
Process
Without a defined process,
a successful HELOC strategy cannot be effectively implemented. Developing a
consistent organizational process includes: (1) internal education for all team
members and (2) a dedicated internal process.
Internal Education
Internal
education should focus on recognizing HELOC opportunities – specifically, what
is a HELOC and how consumers can actually use a HELOC. In addition, employees
need to know who the dedicated product owner is and how to make a successful
referral to the HELOC specialist.
Internal Process
The
HELOC growth strategy must have dedicated owners who are HELOC experts. Each
product owner must have access to an online application process, which is well
defined, intuitive and easy to navigate. In addition, financial institutions
must have clear processes around loan closings. Specifically, what is the
internal documentation process and where will they be closed (e.g., in branch,
online, in a lender’s office, etc.)?
Product
With the process defined,
it is time to focus on the product. Although it isn’t always obvious with a
product such as HELOCs, there are significant ways a financial institution can differentiate
itself. For example, will your financial institution focus on a fixed-rate offer
or an introductory rate offer? Consumers will want to compare rates, so it is
important to understand how compelling your rate offering will be to prospects.
Other items for consideration include decisions regarding closing costs and
credit quality – essentially, will you charge closing costs and what will your
risk tolerance be as it relates to consumer credit scores. Like our other products, HELOCs are most successful
when financial institutions pair a compelling product offering with targeted
marketing and differentiating service.
Promotion
Once you have the right
process and products in place, the final step is promotion. A random survey of
many websites shows most financial institutions don’t even promote their HELOC
offerings. The first step in effectively promoting HELOCs is to include them on
your organization’s website. The next and most important part is to utilize
data to make strategic decisions.
Imbedded in your financial
institution’s data is a wealth of information regarding targeting
opportunities, specifically, who are your best customer or member HELOC
targets? When this information is paired with non-customer or member targeting
information based on external data sources, a financial institution can then
successfully implement a targeted omni-channel marketing approach to increase
HELOC acquisition.
HELOC promotion utilizing
an omni-channel marketing approach includes a variety of sequenced and targeted
methodologies. For example:
·
Emailed offers to
targeted customers or members directing them to a HELOC microsite
·
Digital
integration with social media through strategically placed digital marketing
·
Promotional
visibility at your branches
·
Targeted mailings
to high probability prospects
·
Digital display
ads to targets across multiple electronic devices
When executed properly,
the impact of targeted marketing drives actual results. A case study highlighting
one financial institution’s success with an omni-channel marketing approach shows
an 11-branch institution that implemented its first HELOC growth strategy in Q1
of 2017. Even with the dollar volume of HELOC originations at a three-year low
nationally, the following results were achieved:
·
Averaged 15
additional funded HELOC loans per month
·
Recouped
marketing investment early in Q3
·
Doubled new HELOC
production
The time for a proven
HELOC strategy is now: (1) The resurgence in HELOCs represents a significant
opportunity for community financial institutions to boost loan volume, (2) The
current underlying economic fundamentals are conducive to HELOC growth, and (3)
Consumer interest exists. In order to capitalize on this opportunity, financial
institutions must now decide if they are willing to design and deploy a HELOC
strategy consumers will embrace.
David
Carlson, senior vice president at Haberfeld Holdings,
a data-driven consulting firm specializing in core relationships, customer, and
profitability growth for community-based financial institutions. Mr. Carlson
can be reached at (402) 323-3600 or
dcarlson@haberfeld.com.