What is the 7-5-5 formula for HELOC applications?
This article was produced in partnership with Tavant.
Desmond Devoy, of Mortgage Professional America, sat down with the head of fintech services at Tavant, Matthew Wood, to talk about how Tavant’s Touchless Lending technology is increasing the speed and quality of HELOC applications.
Matthew Wood (pictured) feels the need for speed when it comes to home equity lines of credit and home equity loans.
Whether it is from banks, credit unions, mortgage brokers, and even hedge funds, what he is hearing is that “we need speed,” said the head of fintech services at Tavant. There is palpable frustration when “you can’t get the speed you need, the quality you need. Now it’s a question of how you go about it. How do we close more loans more quickly? How do we gain speed?”
Technology can certainly play a significant role in making this happen. “It’s not just technology writ large with a capital T,” he said.
But two things must happen simultaneously to make this viable – quality and good customer service. On top of that, there are logistics at play too.
“How do you handle the documents as they come in?” he asked, especially important documents related to income.
Adapting for different needs
And then there’s decision analysis because that is not a one-size-fits-all process. Bank A does it one way, Bank B another.
“All of them have different approaches to what a HELOC is,” he said. “What they’re trying to do with the HELOC is that they’re trying to create a structure and a guideline where, financially, it will yield the same outcomes as a second lien. So that’s a very unique set of guidelines.”
For hedge funds, though, the scrutiny will be different since they are going to issue mortgage-backed securities against them. Plus, there are also origination guidelines that a broker has to abide by as well.
Whereas other origination platforms may claim to be digital, there are still a lot of people behind the process, “just doing the same thing as always done,” he said. “So documents are handled by people, maybe getting faster because more people and decisions are being handled.”
With Tavant, a broker can get touchless document processing and touchless decision analysis, with the system being able to stick to the different guidelines and verification and “exit the pipe fully created.”
No solution in this context is one-size-fits-all, so “tailoring it to the banking context and the hedge fund context is really kind of where we’re seeing the greatest traction,” Wood said.
Tavant’s touchless components are proprietary and customizable.
“We really do have a unique approach to touchless documents, and they really have a unique kind of AI-enabled touchless decision analysis to the rest of the platform or the solution as needed,” said Wood.
In fact, Wood even has a target formula for how long an application should take.
“It’s got to have this decision acceleration and this document acceleration. The tagline is 7-5-5. Seven minutes for application, five minutes for underwriting, five days to close,” he said. “That’s the target that we’re working with.”
The rise of the HELOC
According to Wood, HELOCs are gaining in popularity because, in an admittedly “blunt” assessment, “it’s the only game in town.”
“Americans are simple creatures,” he added. “We use up our unsecured debt until we’ve used it all up. And then we switch over and use it for equity and drive that down. And then we switch over. We do that all the time.”
But now, there are added inflationary pressures in a unique, post-pandemic economic environment. Rising interest rates also mean that loans and credit card payments are going up, and “you’ve got yourself in a situation.”
This can create a challenge in that people are “staying put right now” when it comes to housing. But a HELOC can create a pathway to getting your hands on money a homeowner needs now, without getting a second mortgage and running the risk of losing their home in case of a default.
“It’s a way of getting cheaper money, right?” Wood said, even with HELOC rates in the highest single digits or low double digits.
Statistics back this up. According to a report by USA Today back in November, homeowners are sitting on an estimated $20 trillion worth of home equity, “boosting the demand for home equity lines of credit and home equity loans.” The report stated that HELOC activity grew to the highest level since the first half of 2007 in the first two quarters of 2022, the newspaper said, citing information from CoreLogic. During that same period, lenders originated more than 807,000 new HELOCs, totaling more than $131 billion. Both HELOC counts, and amounts have increased by 30% year-over-year in 2022.
How does this help brokers and borrowers?
With this new popularity of HELOCs, Tavant’s new system can be a boon to brokers and borrowers.
“From the borrower’s perspective, it’s all about ease, and it’s all about clarity,” he said. “From the customer perspective, more than anything, you get your decision, and you’re done. If something needs to be done, you’re told very quickly because the system tells you. So the kind of transparency and speed of transparency and certainty.”
And with brokers, with this increase in volume, this type of system can help them do more.
“Being a wholesale broker, you have got to get the guidelines right. So, given that there are so many more players now. We’re trying out new products that have existed before, and new configurations of what it means to be a HELOC or what it means to be a second lien, from a broker’s business perspective, they need a system that can drive that quality,” said Wood.