Home equity is on the move…
Like other areas of banking, digital channels are increasingly important to treasury management. Curinos research has found that a third of banks spend more than 3% of TM revenue on digital annually.
Home Equity and Cash-Out (Mortgage) Recent Application Unit Trends
Source: Curinos LendersBenchmark
…and adjustable-rate home loans are coming back.
Rising rates are also expected to trigger a return of the long-slumbering adjustable-rate mortgage (ARM). But these aren’t your father’s home loans.
The ARM has changed dramatically over the years. The initial frequent adjustment periods have largely been replaced by initial fixed-rate period of five, seven and 10 years, making them more consumer-friendly. Curinos is already seeing growth in ARM product lending and a contraction in fixed-rate lending.
So how can lenders position themselves for this potential market shift? For banks and credit unions, it is crucial to understand the market “buy box,” or risk parameters, and determine how that relates to the institution’s own risk appetite. Insight and market intelligence about pricing for risk attributes (such as loan purpose, borrower credit, loan-to-value, etc.) is equally important.
Mortgage bankers who must sell loans (since they generally don’t have the ability to retain loans in their portfolio) need to develop relationships with banks and credit unions that have an ARM appetite. Of course, those relationships are best built when it isn’t already a hot market for the loans. Otherwise, the mortgage bankers will find themselves in competition for investors.