3 Benchmarks for a Successful Home Equity Program

Home equity lending has gained significant traction as economic conditions change and mortgage markets remain challenging. The number of mortgage refinance applications dropped significantly in recent years due to higher interest rates, which surged to around 6-7% for a 30-year fixed-rate mortgage.

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With fewer homeowners able to refinance to a lower rate and auto loan growth slowing, home equity products have emerged as the next big opportunity for financial institutions.

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In particular, credit unions and community banks have a window to capitalize on the demand for home equity loans to support their members' financial needs while driving growth. The question is, how can these institutions ensure their home equity programs are set up for success?

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Focusing on three key benchmarks can help establish a competitive edge and ensure that your program thrives: loan volume, clear-to-close time, and the total origination cost.

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1. Loan Volume: A Sign of Program Health

Tracking loan volume is a straightforward yet powerful way to measure the health of a home equity program. It reflects the market demand for home equity products and serves as a barometer for the program's growth trajectory. The goal should be to close at least one home equity loan annually for every million dollars in assets under management. This ratio provides a reasonable benchmark for institutions aiming to achieve healthy growth in their home equity portfolios.

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Monitoring loan volume enables financial institutions to identify emerging trends and make data-driven adjustments to their strategies. For instance, if loan volume is below target, this may indicate the need to intensify marketing efforts, enhance borrower education initiatives, or streamline internal processes to expedite application approvals. Moreover, tracking the mix of closed-end home equity loans and Home Equity Lines of Credit (HELOCs) can offer insights into changing borrower preferences, helping institutions tailor their offerings to better meet customer needs.

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2. Clear-to-Close Time: Speed as a Competitive Advantage

The time it takes to move a borrower from application submission to closing is a critical measure of operational efficiency. A shorter clear-to-close time enhances the borrower experience and signals an institution's ability to manage processes effectively and minimize manual labor. The benchmark for a successful home equity program is to close loans within one business week, where regulations permit. Of course, in jurisdictions with specific rules—such as Texas, where a 10-day turnaround is mandatory—lenders should still strive for the fastest possible clear-to-close time.

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A streamlined process benefits the borrower and the institution by increasing productivity and freeing up staff to handle more applications. iQ Credit Union provides a prime example of how rapid turnaround can differentiate a lender in a competitive market. By leveraging Coviance's workflow automation, iQ Credit Union achieved a remarkable three-hour turnaround for a home equity loan. The application was submitted shortly after 1:00 p.m., and by 4:00 p.m., the loan was fully approved and ready for signing. This case demonstrates how optimizing workflows and employing automation can drastically reduce processing times, setting a new standard for what borrowers can expect regarding speed and service.

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Short clear-to-close times can also help institutions manage risk effectively. A lender's capacity to quickly assess and approve loans while still maintaining sound underwriting practices reflects its capacity to balance efficiency with risk management. Faster processing times allow lenders to be more agile in responding to market conditions, enabling them to adjust their strategies or introduce new loan products quickly.

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3. Total Cost of Origination: Measuring Financial Efficiency

The total cost of originating home equity loans is a crucial metric that provides a window into the program's financial efficiency. This benchmark encompasses all expenses associated with the origination process, including staffing, technology, compliance, and marketing costs. Understanding these costs is vital for institutions to evaluate their home equity programs' true return on investment (ROI).

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Several non-monetary factors also contribute to the total cost of origination, such as the number of human touches required per loan file, the technology used for processing, staff resources, the amount of time spent on a project or task, and more. Financial institutions can reduce these costs by streamlining workflows, automating manual processes, and negotiating better terms with service providers. While there is no single benchmark for acceptable origination costs, the goal should be to keep expenses as low as possible without compromising the borrower's experience or loan quality.

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For example, lenders might consider adopting a "no-closing-cost" loan option or requiring a minimum draw on HELOCs to offset the expenses. Additionally, institutions should assess the cost-effectiveness of their loan origination system (LOS) and other technologies. An efficient LOS can lower per-loan costs by reducing the amount of manual data entry and enabling faster document processing.

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Enhancing Borrower Experience as a Key Element

Outside of these quantifiable three benchmarks, lenders should prioritize providing a seamless borrower experience to maintain a competitive edge. While borrower experience is not always easy to quantify, it significantly impacts the success of a home equity program. Today’s borrowers, especially younger generations, expect a digital-first experience with minimal friction, including a straightforward application process, real-time updates, and a fast turnaround. The rise of digital-only lenders has further heightened these expectations, putting pressure on credit unions and community banks to keep pace.

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A positive borrower experience extends beyond the loan approval process. It starts with the initial contact—whether through a website, mobile app, or in-person visit—and continues throughout the loan lifecycle. Borrowers should be able to easily apply for a loan, upload necessary documents, track their loan status, and receive their funds without any hassle. Coviance's Borrower Experience platform facilitates this by automating communication, providing real-time updates, and triggering necessary collateral-related actions, all of which help cut closing times from weeks to just days—or even hours in some cases.

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While automation is critical to improving efficiency and meeting the above benchmarks, lenders must also recognize the importance of human interaction in the home equity process. Borrowers often have questions or concerns that require a personalized response, and frontline staff play a vital role in addressing these. Ensuring that loan officers and customer service representatives are well-trained and knowledgeable about home equity products can enhance the overall borrower experience and build long-term relationships.

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Frontline staff should be equipped with scripts and talking points to help guide conversations, address common borrower concerns, and position home equity loans as versatile financial tools. For instance, when discussing HELOCs as an alternative to credit cards for debt consolidation, staff can highlight the lower interest rates and potential tax benefits. This balanced approach allows lenders to leverage automation for efficiency while still providing the personal service that borrowers value.

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Monitoring Benchmarks for a Thriving Home Equity Program

By focusing on key benchmarks such as loan volume, clear-to-close time, and total cost of origination, financial institutions can ensure their home equity programs are competitive and set up for sustainable growth. These benchmarks provide a comprehensive framework for measuring program success while guiding institutions in optimizing processes, enhancing borrower experiences, and maximizing financial efficiency.

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For community lenders looking to take their home equity programs to the next level, Coviance offers solutions that streamline operations, empower staff, and deliver an outstanding borrower experience. The success of iQ Credit Union’s three-hour turnaround is just one example of how automation and efficiency can challenge the traditional processes of home equity lending.

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To learn more about how Coviance can help your institution meet these benchmarks and grow your home equity program, book a demo today!