How to Leverage Consumer Trends to Grow Your Loan Portfolio

Green Lending

Produced by Traci Mottweiler, Director of Growth Strategies | September 27, 2019
Key Contributions by New Vista Solutions and LendKey


Home lending has become increasingly more difficult in today’s evolving marketplace. The main factors driving these lending challenges include:

1. Evolving competition
2. Shifting consumer demographics
3. Increasing loan rates

While market disruption and rate prices do create some lending challenges, they also create some opportunities. 

To meet the growing marketplace demand and pull lending opportunities away from evolving competitors, lenders are finding new ways to diversify their home loan offerings. Addressing home trends among today’s consumers is one way financial institutions can overcome loan challenges to attract new borrowers and drive loan revenue.

 

Trend #1: Home Improvements

 

Home interest rates are nearing an all-time low,1 which has increased the demand and cost of homes. As such, many consumers are seeking to instead renovate and remodel homes they are currently in, which has driven the demand for loans to support these home improvement projects. The forecasted remodeling market size in 2025 is $270B as compared to $221B in 2015 - a 22% market increase in just ten years.2

This demand has increased the diversity of home loan options available to consumers. Contractors are now offering home improvement loans to homeowners. At the same time, the digital revolution has made applying for these loans easier, and faster for consumers. 

There are a few solutions a lender can offer to members for financing their home improvement projects. These primarily include home equity loans, HELOCs and home improvement loans. To make sure that your financial institution maintains a competitive edge in today’s marketplace, you want to ensure that you are offering at least one of these options to your members, but its best to provide a few options so you are hitting more of your market and offering solutions that consider risk and reward for both your institution and members. 


Home Equity Loans & HELOCs

An increasing number of homeowners are looking to leverage home equity loans to finance their home improvement projects, rather than refinancing their primary mortgages and subsequently losing their rock-bottom rates.

If you choose to offer these loans, you want to ensure that your home equity guidelines are attractive to potential borrowers so that your financial institution maintains a competitive edge in today’s marketplace. One of the biggest draws to your consumers would be the ability to lend up to 100% loan to value, rather than the industry standard of 80%. By doing this, lenders are often able to close 15-20% more loans.

Expanding your underwriting guidelines to approve prime and near-prime loans will also allow lenders to avoid turning away less-risky borrowers that could have otherwise completed a home equity loan with you. 

Home Improvement Loans 

Offering other home improvement financing options can provide alternative funding options for home improvement projects, which will open the door to a diversified loan portfolio in a high-yielding asset class.

By providing access to prime homeowners from all corners of the nation via a national network of contractors, cutting edge programs like LendKey’s Home Improvement Lending solution can significantly expand a lender’s loan opportunities. This particular solution offers financing on home improvement projects that fills the gap between a HELOC and a credit card, thereby eliminating the need for the borrower to open or increase lines of credit or personal loans, which often carry a much higher interest rate. Diversifying loan opportunities geographically also has the added benefit of reducing economic and disaster-related risks in your loan portfolio.
 

Home improvement loans allow homeowners to quickly expand their budget and make better improvements than they could have afforded out-of-pocket.

By offering these loans, lending institutions can:

  • Quickly and cost-effectively deploy capital and diversify assets.
  • Generate a healthy ROA in a high-performing asset class with prime homeowners.
  • Support homeowners and the economy by providing financing options through vetted community contractors. 

 

Trend #2: Energy-Efficient Homes

 

Consumers are driving the demand for energy-efficient homes. A September 2017 report published by the Rocky Mountain Institute states consumers are willing to pay more for energy-efficient homes, especially Millennials. In fact, 10% of Millennials involved in this report stated that they rank energy efficiency as a top priority when choosing a home to purchase. 

The government and utility companies are also offering a growing number of financial incentives to property owners leveraging sustainable/energy-efficient materials, designs, or construction practices in their home construction and renovation projects. These incentives have made green practices such as these more and more popular among home owners. However, the government offers no centralized database to search all incentive programs offered. 

To make things easier for property owners interested in green practices, New Vista Solutions created The Green Report, a comprehensive list of available government-backed and utility-funded financial incentives generated using a property’s location. This report points property owners to available incentives, thereby simplifying this process and helping them to save money on energy-efficient home improvement projects. 

This resource also serves as a tool to market these green practices, which can reduce risks for the financial institution. Green buildings have lower utility bills, which puts the property owner in a more stable financial position. Green buildings also tend to have a higher market value than non-green buildings — resulting in a healthier loan-to-value ratio.

It is crucial that lenders continue to keep a finger on the pulse of the market and continue to leverage new home loan trends like these as home costs and competitors continue to disrupt traditional lending strategies. Offering diverse home improvement financing options can help your financial institution to more quickly deploy capital, increase return on assets, grow your portfolio, and increase loan yield, all the while pulling in opportunities from retail loan programs and other competitors working to steal business away from your lending institution.

Allied and our partners are invested in helping our lending institution clients build competitive loan portfolios that increase loan market share, decrease loan-to-share, and support the success of their members and communities.


Click here to contact us and learn how we can help grow your lending program.


About Allied Solutions

Allied Solutions, LLC is one of the largest providers of insurance, lending, and marketing products to financial institutions in the US. Allied Solutions uses technology based products and services customized to meet the needs of 4,000 clients along with a portfolio of innovative products and services from a wide variety of providers. Allied Solutions maintains over 15 regional offices and service centers around the country and is a subsidiary of Securian Financial Group, Inc.

About LendKey

LendKey delivers seamless technology, servicing, and support that financial institutions need to establish a strong digital lending presence and build lifetime relationships with prime borrowers. Created to help financial institutions improve lives with lending made simple, LendKey enables partners to effectively manage liquidity, reduce lending costs, and mitigate risk. Lenders optimize their offerings by drawing upon LendKey’s demand generation, online decisioning and loan origination engines, loan servicing, compliance expertise, and proprietary balance sheet options. Founded in 2009, LendKey works with hundreds of credit unions and banks that have collectively deployed over $3.2 billion in education and home improvement loans. LendKey was recently named to the CB Insights Fintech 250 list and was recognized as a top fintech employer by American Banker and Credit Union Journal. Visit www.lendkey.com/lend for more information. 

About New Vista

New Vista Solutions is a full service vendor management company for residential and commercial mortgage lenders, offering a suite of compliant, technology-driven settlement services products through a national network of best-in-class service providers. The convenience of a single technology platform with a dedicated customer service department reduces costs and turn-around times for mortgage lenders. Products include title services, valuations, tax service, flood determinations and employment/income verification. For more information, visit www.newvistasolutions.com.


1 https://www.valuepenguin.com/mortgages/historical-mortgage-rates#nogo
2 https://www.jchs.harvard.edu/research-areas/reports/demographic-change-and-remodeling-outlook
3 http://www.cnbc.com/2018/04/11/mortgage-refinances-fall-to-the-lowest-level-in-a-decade.html
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Content in the blog posts are the opinion and views of the writer, and don't necessarily reflect the opinions or views of Allied Solutions.

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