When COVID-19 closes a door, it opens a window
According to the CEO of nationwide second mortgage lender Spring EQ, credit unions suffering from the COVID-19-fuelled crash of their auto lending profits can make up for the lack of income by capitalizing on one of the pandemic’s other key trends: the ongoing need for cash among American homeowners.
COVID-19 is far from done with the U.S., meaning another undetermined period – two months? two years? – of uncertainty and financial hardship for millions of Americans. By providing home equity loan products to their struggling members, Spring EQ’s Jerry Schiano says credit unions can be there for those who need assistance while also growing their business.
"Our world has changed dramatically over the past five months, and millions of Americans need financial help now," Schiano says. "For many homeowners, their best option for accessing cash immediately lies in their home equity. Credit unions are in an ideal position to help their members take advantage of historically low interest rates and access the cash they need today to help them through this difficult time."
Credit unions, typically a favoured option among consumers looking for vehicle financing, have been hit especially hard by the pandemic’s slowing of auto sales. With showrooms closed and millions out of work, auto sales hit a 10-year low in March before dropping 30 percent in the second quarter – the largest decline since the Great Recession and the auto bankruptcies of 2009. According to the Credit Union National Association's (CUNA) Monthly Credit Union Estimates for August, the average loan-to-share ratio fell from from 82.12 percent to 81.65 percent between February and March 2020.
It’s Schiano’s view that HELOCs and other home equity offerings present an opportunity for credit unions and their members to help each other through this extended period of economic disruption: Homeowners can take advantage of today’s low interest rate environment and use the equity they’ve built in their homes to meet their current financial needs while credit unions create a much-needed stream of revenue.
Spring EQ’s strategy, for example, is to partner with credit unions and provide them access to the company’s white label affinity program, which typically enables homeowners to borrow up to 90 percent of their home's equity and receive their cash in less than three weeks.
Schiano says Spring EQ continues to look for credit unions open to purchasing “fully underwritten, closed, and funded home equity loans that fit their credit criteria” on a monthly and ongoing basis. The loans would include agreed upon representations and warranties to protect Spring EQ’s credit union partners and come with the “benefit of increasing their portfolio with high-yielding assets, secured by real estate, without incurring the expensive manufacturing costs related to originating home equity loans today.”
Accessing hard-won home equity as a means of achieving temporary financial stability may not be the ideal solution for homeowners, but at a time when everyone in America seems to be losing something – a job, a home, a routine, sanity – the potential win-win scenario Schiano is proposing doesn’t sound too bad.