3 Benefits of Home Equity Insurance Management for Lenders

For many homeowners, the refinance craze temporarily pushed the appeal of home equity loans to the backburner. However, as home equity reaches record levels in America, financial institutions should be well prepared to offer home equity loans.

Home equity loans help financial institutions diversify their portfolio and appeal to a wider customer base. However, simply offering home equity loans does not leave the lender protected. In the following content, we discuss the top three benefits of home equity insurance management for lenders, reducing risk and bolstering customer loyalty.

Home Equity Insurance Risk Management for Lenders: Top 3 Benefits of Securing Investments

#1. Generate Significant Revenue

Home equity is on the rise. According to MBA Newslink, U.S. homeowners gained over $1.5 trillion in equity in 2020, about $26,300 per homeowner. Frank Nothaft, CoreLogic Chief Economist, commented:

“This equity growth has enabled many families to finance home remodeling, such as adding an office or study, further contributing to last year’s record level in home improvement spending.”

We do not expect this trend to diminish soon. As equity grows, homeowners will look to financial institutions for guidance to tap into their equity. Being a financial institution that offers home equity loans is important to expand your portfolio and build your revenue. However, being a financial institution protected by an insured home equity risk management strategy is even more critical for revenue growth.

Here are a few of the most significant reasons why:  

• Having home equity insurance can give you the confidence to expand your LTV thresholds by up to 100% on your core home equity loans. Ultimately, this expands the loan choices you can make available to your borrowers. More choices and opportunities for loan approval can increase loan volume by 15-30%.
• Currently, HELOC, Closed-End, Purchase Money, Secured, and Unsecured Home Improvement Loans are some of the most popular loans in today’s economic climate.  A Home Equity Insurance Program protects these loans against default.
• Financial institutions have full delegated underwriting authority up to $250k. Thus, additional staff hours are not required to participate in an equity protection program.
• Costly foreclosure processes are avoided.

#2. Transfer Risk of Loan Default from the Financial Institution to the Insurance Company

Unfortunately, regrettable life events happen to your customers from time to time, including bankruptcy, divorce, job loss, etc. If a borrower’s loan defaults for any reason, equity insurance removes the risk from the lending institution.

If a loan has become 90 days delinquent, and all appropriate collection procedures have been completed, you are financial institution can submit a claim. Once the claim has been received, along with all associated paperwork, the insurance company will remit a check for the loan balance, within policy limits.

Lenders can eliminate their loan loss reserves, keeping losses off the balance sheets.

#3. Build Customer Loyalty by Providing a Loan Option Not Otherwise Available

Finally, home equity insurance risk management builds customer loyalty. Financial institutions with equity protection programs have more flexibility to offer options to customers.

Additionally, good customers are rewarded. “Credit worthy” borrowers are often told they lack the equity to obtain loans via traditional underwriting guidelines. Alternatively, some financial institutions require borrowers to purchase mortgage insurance on top of their first mortgage loan. When the financial institution is part of an equity protection program, credit worthy borrowers are rewarded with a smooth, streamlined, and straightforward borrowing process.

As mentioned previously, equity insurance allows financial institutions to offer varied loan types, including HELOCs, Home Improvement, and Purchase Money Seconds, better meeting customers’ needs.

Finally, home equity insurance allows the financial institution to keep the second in house, giving the borrower strengthened ties to the lender. Happy customers are often loyal customers.

Protect Your Lending Institution with Red Rock Financial’s EPP

Financial institutions that engage in home equity insurance risk management and equity protection programs typically increase their total loan volume by 25%. At Red Rock, our Equity Protection Program (EPP) increases the loan options available by expanding loan guidelines and parameters for a variety of home equity products in a fully insured portfolio program.

By insuring loans with augmented LTV thresholds, debt-to-income ratios, and credit score ranges, the lender can expand the equity loan offerings without additional risk to the lender. Explore our program highlights, products, and parameters below!

EPP Program Highlights:

• No direct cost to your entity
• Balance sheet protection with zero losses
• Expanded LTV thresholds
• No foreclosure required to file a claim
• Increased home equity volume
• Premiums covered by a slight bump in interest rate - transparent to the customer
• Protected against customer default
• Premiums calculated on the outstanding monthly balance of insured loans
• Policies underwritten by A.M. Best “A” rated carriers

Eligible Home Equity Products:

• Closed-end home equity loans
• HELOCs
• Purchase money second loans
• Home improvement loans (secured/unsecured)

Expand your Guidelines/Credit Parameters:

• LTVs up to 133% for home improvement
• Up to $250,000 in loan/line amounts
• Debt ratio limit up to 45%
• FICO scores as low as 660

Red Rock Financial can guide you to a competitive, easily managed EPP that helps bolster home equity loan volume without increasing risk.

If your lending institution is wanting to increase home equity lending while mitigating risk, consider adding a home equity insurance program. Give us a call at (847) 867-3311 or complete our online contact form to get started today!