Credit Unions, Home Equity Lending & the 10-Day Close: The Rise of Instant Property Condition Verification
Despite interest rates continuing to climb, homeowners are still sitting on up to $19.4 trillion in equity, creating demand for equity-based loans and lines of credit that will likely remain strong through 2024. But as a growing number of credit unions make equity lending a top priority, they face heightened competition from traditional banks and emerging fintechs. As a result, savvier credit unions will likely begin leveraging AI-based instant property condition verification technologies to help them cut the standard 40-day close by 50% or more. It may be easier than some realize.
The mortgage frenzy triggered by record-low interest rates and pandemic-era relocations is beginning to feel like ancient history. By the third quarter of 2023, the Fed’s aggressive, year-long series of interest rate hikes designed to put a crimp in rampant inflation had resulted in mortgage rates as high as 8% on a 30-year fixed loan. What’s more, there are indications that Central bankers may not be finished yet.
As Credit Union Times points out, high interest rates, stubborn inflation, and economic uncertainty have sparked the “I hate my house, but I love my mortgage” syndrome. Homeowners who locked in low interest rates on their existing mortgage are staying put and renovating rather than taking on a higher mortgage rate for a new home. While equity levels will likely see some erosion in the coming months, they’re expected to remain substantial—fueling continued demand for equity lending products. With the right tools, credit unions are well-positioned to capitalize on these trends.
Tight Margins, Growing Competition
Equity lending is now a top priority for 59% of the nation’s credit unions, according to TransUnion. And it’s easy to see why. Credit unions and other home equity lenders originated more than 2.7 million home equity lines of credit (HELOCs) and loans in 2022—a figure that could top 3.7 million units through the end of this year.
Credit unions have some built-in advantages over traditional banks. HELOCs, for instance, are largely a portfolio product for credit unions and are held in-house on the their balance sheet. This gives portfolio lenders more flexibility on terms and origination standards, as well as on underwriting requirements, as they aren’t beholden to traditional, secondary market guidelines.
Amid the current conditions in the sector, however, large national banks, fintechs, and other alternative lenders are ramping up their equity lending operations. As Wolters Kluwer points out, this represents two challenges for credit unions. While equity lending products tend to perform well compared to other forms of consumer credit, the borrower’s ability to control draws on HELOCs, for instance, can result in lower margins.
With nimble, digital-first rivals and large, well-funded banks joining the fray, credit unions will need to make faster lending decisions, accelerated closing times, and offer digital document presentation and e-signing.
Boosting Efficiency Without Risking Accuracy
Credit unions with the technologies needed to expand or modernize their equity lending operations will be best positioned to meet those requirements. For many, automated valuation models (AVMs) will be critical.
The problem is that the data many traditional AVMs rely on is inaccurate or out-of-date—and provides little to no insight into the current condition of a property. In fact, recent tests comparing traditional automated valuation models with AVMs that take current, house-specific condition data into account found that property condition-adjusted AVMs showed a 7.7% improvement in PPE-10 predictions of on-market valuations. Not considering this kind of intel could easily put equity lenders and borrowers in a negative equity position. For credit unions, that means the question isn’t whether they should take this kind of house-specific intelligence—it’s how.
Enter: Instant Property Condition Verification
Some lenders supplement AVMs with a traditional property condition report (PCR). But in addition to being costly and slow in turnaround time, these in-person assessments often miss essential details that impact valuation and loss risk models. For one thing, there’s the rudimentary, “drive-by” nature of PCRs. For another, there’s old-fashioned, all-too-fallible human subjectivity.
A better choice: solutions that leverage AI-based instant property condition verification intelligence. Today’s most robust solutions use computer vision, machine learning, continuously refreshed aerial imagery, and novel data sources to extract highly accurate intel about property conditions and their surroundings on demand. This enables lending operations to increase the speed and accuracy of the assessment process and make faster, smarter business decisions.
It also enables organizations to strike the right balance between automation and human intervention. For instance, lending applications can be routed to the proper valuation methodology automatically, completely automating approvals on the spot when possible while reserving home inspections for only the properties that warrant closer scrutiny. Among other benefits, this can help credit unions cut closing times from 40 days to 20 or even 10 business days.
Smarter, Faster, Better, More
Existing, human-driven visual inspections like PCRs have been shown to miss 70% of issues identified by instant property condition verification platforms. Credit unions and other equity lending organizations can use this intelligence to gain objective and current property conditions assessment, including features often missed by existing data sets and exterior inspections. This includes the presence of solar panels, swimming pools, and accessory structures that significantly impact lending decisions.
Credit unions that capitalize on instant property condition verification solutions to meet the demand for equity lending products can maximize their advantages over larger banks while outpacing fintechs and other digital-first rivals. By dramatically accelerating decisions based on an accurate, up-to-date understanding of property condition, some will easily succeed in making that 10-day close a reality. By automating routing to make the best use of human expertise and enabling even near-instant approvals for appropriate applications, others will even top it.