Home Equity Booms, But Are Banks Falling Behind?

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Home equity is at an all-time high, presenting a massive opportunity for banks. At the end of the second quarter of 2022, the average U.S. homeowner had $300,000 in tappable equity. This is an increase of nearly 28 percent year over year, according to recent data from CoreLogic.

As interest rates continue to rise and housing prices remain high, many homeowners are choosing to stay in their current home and instead of refinancing, many will opt for less rate-sensitive home equity products, especially if they’re looking to renovate.

Yet, getting approved for a home equity loan can take weeks before the homeowner will even know how much they can borrow, resulting in a frustrating experience for homeowners, which are one of the most valuable customer segments for banks. In fact, a homeowner’s net worth is more than 40 times greater than a renter’s net worth, according to data from First American.

Meanwhile, nonbank lenders are rolling out home equity products at a record pace – a space that has traditionally been dominated by banks. For example, Rocket Mortgage started offering home equity loans in August. Guaranteed Rate, loanDepot and others have also revealed new home equity and HELOC products this year. Clearly, fintechs are already capitalizing on current strong home equity positions, a space that has traditionally been dominated by banks.

So, what does the latest home equity boom mean for banks and their relationships with homeowners?

Home Equity: The Country’s Largest Source of Unmanaged Wealth

There are more than 80 million homeowners with more than $27 trillion in home equity, yet home equity is still treated like an unmanaged asset.

Given the wealth and purchasing power of American homeowners, banks cannot settle for the status quo when it comes to home equity products. Otherwise, they risk losing out on this valuable customer segment to nonbank lenders and other fintechs. Fortunately, banks of all sizes can quickly revamp their home equity offerings to better compete in the current market and the banks that do so can positively impact how individuals perceive homeownership.

By making home equity easier to tap, homeowners can enjoy greater financial security and freedom. Meanwhile, banks can boost engagement and foster loyalty while helping this valuable customer segment maximize their biggest asset: their home.

Greater access to open banking data and external data will make this possible. Banks already look at credit score data to make loan offers, but this does not provide the full picture of a  homeowner’s finances.

A homeowner has unique property data, such as their home’s value or the interest rate on their mortgage, that may impact the financial options that are available to them. Today, this property data is not easily accessible for a bank to personalize financial recommendations and make the most relevant product offers, such as a home equity loan at a competitive rate, to the homeowner. The good news is that open banking is changing this.

The Current System Leaves Homeowners with Little Support After Closing

Homeownership is one of the most important ways for consumers to build wealth and financial stability. Yet, the current mortgage system often leaves homeowners without support after their loan closes. For many homeowners, especially first-time homebuyers, it’s not always clear how to maximize their investment and get the most value out of their home.

This presents a ripe opportunity for banks to foster stronger relationships with today’s homeowners. Community banks can play a vital role in educating homeowners about how their home is an asset that impacts what financial options are available to them and how to best leverage those financial options.

For instance, many homeowners are looking to make home improvements that will in turn increase their home’s value when they are ready to move. Banks can provide guidance about which renovations are most impactful for boosting the value of their home. Or, perhaps a homeowner wants to understand the ways their home can support changing family dynamics –  whether it means adding on to the home or converting space into new living quarters. Similarly, if a homeowner wants to benefit from added financial security – could they rent out a portion of their existing space or does it make sense to add on to the property?

Empowering homeowners to understand how to maximize their biggest investment and making it faster and easier to leverage their financial options, including their home equity, is key and will encourage more consumers to pursue the American dream of homeownership – no matter what their dream home looks like.

The New American Dream

There is no reason a homeowner should wait a month or longer for a home equity loan because of manual, resource-intensive processes.  That simply won’t cut it, especially considering that some nonbank lenders and fintechs that target consumers directly have the capabilities to make personalized home equity offers in a matter of days or weeks, not months.

Homeownership is still a key part of the American dream, but that dream looks a bit different today than it did several decades ago. Today’s homeowners are digital natives, often a WFH-er, DIY-er and maybe even an Airbnb-er.

Therefore, the next generation of homeowners will require modern solutions that fit their needs as homeowners, including easier ways to manage their home equity. With the right technology and a focused effort, banks can carve out share in the booming home equity market and nurture lasting relationships with homeowners.

Owning a home comes with a lot of challenges – both financial and emotional, so one of the easiest ways to encourage more people to buy homes in the future is to make owning one – and leveraging one’s equity in it – easier.

About Author:
Matthew Covi is the co-founder and CEO of Chimney, the first embedded solution that allows homeowners to connect their property data to any banking app. As CEO of Chimney, Covi is responsible for overseeing the company’s continued growth and go-to-market strategy. Prior to Chimney, Covi held a variety of leadership roles within digital marketing, product and fintech. He was recently named a 2022 Tech Trendsetter by HousingWire and was named a 2021 Lending Luminary by PROGRESS in Lending Association.


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