Mortgage Daily

Published On: December 27, 2006
HELOC Production Drops

Benchmark study announced

December 27, 2006


photo of Coco Salazar
With fewer borrowers responding to increased bank marketing for related products, the annual number of home equity lines-of-credit closed decreased.

Such conclusion was derived from the Consumer Bankers Association’s 20th annual Home Equity Lending Study announced today by BenchMark Consulting International.

Based on the responses of 46 lenders, bookings for new home equity accounts decreased nearly 5 percent for the year ending June 30, 2006, and new home equity commitments booked averaged $5.2 billion, according to the announcement. In the previous year’s study, 39 lender respondents booked an average of 68 ,234 new home equity accounts and $5.6 billion in new home equity dollar commitments/outstandings.

“Changing interest rates and a shift in the respondent pool contributed to significant changes in this year’s findings compared to the 2005 study,” BenchMark said.

While the volume of new home equity loans jumped 54 percent over the previous year’s level, that of HELOCs continued a three-year trend and dropped 24 percent, said Brian King, BenchMark’s practice manager overseeing the consumer lending division.

Retail branches “absolutely” continued to be the primary source of home equity production, he added.

A notable finding in the study was that marketing efforts increased, but response rates were decreasing, perhaps due to market saturation, according to King.

This year, 24 percent of respondents participated in pre-approved mailings for loans and 59 percent conducted non-pre-approved direct mail campaigns , respectively up 11 percent and 17 percent from last year, BenchMark reported. Overall, respondents reported average response rates amounted to .89 percent of the households targeted, down 27 percent from the prior year’s rate.

“We expect response to marketing for HELOCs and loans to continue to diminish as interest rates rise, and forward thinking institutions are already pursuing new revenue streams to compensate for this downward cycle,” King said in the announcement. “The most value to be attained depends on the institution — some gain traction quickly with new product offerings, while others see significant returns through streamlined operations. One commonality is that we consistently see that the top performers have performed due diligence in reviewing processes and performance before determining the best course of action.

The 46 respondents consisted of small, medium and large institutions, with commercial banks accounting for more than half, the announcement said. Participants addressed approximately 150 detailed questions in 12 categories, including portfolio and booking activity, product characteristics, pricing, underwriting attributes, portfolio management attributes and delinquencies/charge-offs.

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