Why Treating Home Equity Loans Like Mortgages Are Holding You Back

For many community lenders, home equity lending is an untapped area of opportunity. Yet, the way many institutions approach these loans—by applying processes designed for mortgages—limits their potential. Mortgage workflows are burdensome and overly complex for home equity products, creating inefficiencies that drive up costs, delay revenue, and frustrate borrowers.

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By recognizing the distinct nature of home equity loans and tailoring workflows to match, lenders can unlock a straightforward, borrower-friendly process that delivers significant benefits for both their institution and their members.

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Mortgage vs. Home Equity Loans: Core Differences

Before rethinking processes, it’s essential to understand how home equity loans differ fundamentally from mortgages.

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1. Portfolio Management

A primary distinction is what happens to the loan after it closes. Most mortgages are sold on the secondary market or to government-sponsored enterprises (GSEs) like Fannie Mae or Freddie Mac. These loans must meet stringent investor requirements, which adds layers of documentation and compliance.

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In contrast, home equity loans generally remain on the lender’s books, giving institutions greater control over managing these loans. This also means lenders carry the risk—but it’s a manageable risk when supported by tailored workflows and accurate risk assessment tools.

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2. Regulatory Requirements

Because most mortgages are sold off, they’re subject to tight regulation designed to protect investors. This results in higher origination costs driven by the need to meet compliance standards. For home equity loans, the regulatory burden is lower, offering lenders the flexibility to create efficient processes while still managing risk responsibly.

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For example, mortgage workflows often require intensive underwriting processes, while home equity lending, by its nature, can rely on simpler documentation, such as credit scores and automated valuations, to determine eligibility.

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3. Borrower Intent

Mortgages typically serve one primary purpose: purchasing or refinancing a home. Home equity loans, however, are more versatile. Borrowers may use them for a range of needs—renovations, education, medical expenses, or even debt consolidation. This flexibility makes home equity loans a valuable financial tool for borrowers but also requires a more tailored approach to lending.

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The Hidden Costs of Treating Home Equity Loans Like Mortgages

When home equity loans are processed as though they are mortgages, lenders face several challenges that negatively impact their bottom line and borrower experience.

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1. Slower Processing Times

Mortgage workflows are built around lengthy checklists and documentation requirements—many of which are unnecessary for home equity loans. For example, mortgages often require extensive appraisals, income verifications, and disclosures tied to secondary market regulations. Applying the same standards to home equity loans creates delays, often stretching processing times to weeks or even months.

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One example is the appraisal process: while a full appraisal is necessary for a mortgage, home equity lending can use automated valuation models (AVMs) or hybrid appraisals that are faster and more cost-effective. Adopting these tools allows lenders to cut days—or even weeks—off their timelines.

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2. Higher Operational Costs

Every unnecessary step in a process adds cost. Mortgage workflows are expensive to manage because they require additional staffing, underwriting, and compliance oversight. When these same workflows are applied to home equity loans, the cost of originating these loans increases, cutting into profit margins.

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Additionally, staff time wasted on managing excessive documentation creates an opportunity cost. That time could be spent focusing on higher-value activities, such as deepening relationships with borrowers or marketing lending programs to drive new business.

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3. Reduced Borrower Satisfaction

Complicated processes frustrate borrowers, particularly when they’re applying for a loan they view to be straightforward. Borrowers don’t want to jump through hoops or submit piles of documents for a home equity loan, nor do they need to. When the process feels unnecessarily complex, borrower satisfaction declines, making it harder to retain those members in the future.

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This is especially true in today’s competitive lending landscape, where fintech providers and alternative lenders are offering streamlined, tech-driven solutions. A slow, cumbersome process risks pushing borrowers toward these alternatives.

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4. Delayed Revenue Generation

The longer it takes to process and close a loan, the longer lenders must wait to generate revenue. In competitive markets, speed matters—not just for borrower satisfaction, but for ensuring timely profitability.

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A Better Way: Treating Home Equity Loans Like Home Equity Loans

By designing workflows specifically for home equity lending, community lenders can solve these challenges and build a more efficient, borrower-centric lending program.

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1. Faster Approval Times

Simplifying home equity processes starts with eliminating steps that don’t align with the loan’s unique risk profile. For example, instead of requiring full appraisals, lenders can leverage automated valuation models (AVMs) or desktop appraisals, which provide accurate data in a fraction of the time. Simplified documentation requirements also allow lenders to make faster decisions, meeting borrower expectations for speed and convenience.

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2. Reduced Documentation

Home equity loans don’t need the exhaustive paper trail that mortgages require. Mortgage transactions typically require full title reports and title insurance to protect the lender from any title issues with the property—an essential step for loans being sold on the secondary market. However, applying this same level of title work to home equity products is unnecessary and adds costs and delays.

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By scaling documentation requirements to reflect the lower risk profile of home equity loans, lenders can significantly reduce processing times, lower operational costs, and provide a more seamless experience for borrowers—all while still protecting their financial interests. 

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3. Lower Operational Costs

Eliminating unnecessary steps leads to cost savings across the board. Lenders can process more loans with the same resources, boosting profitability without increasing headcount and additional overhead costs.

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4. Improved Borrower Experience

Today’s borrowers expect simplicity and transparency. A clear, streamlined process makes it easier for them to understand what’s needed and when. Faster approvals and fewer hurdles enhance borrower satisfaction, increasing the likelihood of repeat business and referrals.

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5. Quicker Time to Revenue

With streamlined processes, lenders can close loans faster and begin generating revenue sooner. This has a compounding effect on profitability, especially in high-volume lending programs.

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Technology as a Catalyst for Change

Transitioning from mortgage-style processes to simplified home equity workflows requires more than just a change in mindset—it demands the right tools.

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This is where Coviance makes a difference. Designed specifically for home equity lending, our platform automates time-consuming tasks, eliminates inefficiencies, and empowers lenders to create borrower-focused workflows.

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Here's how Coviance supports lenders:

• Automation: Reduce manual tasks, freeing up staff to focus on borrower relationships. Learn more about our Workflow Automation.
• Custom Workflows: Tailor processes to meet the unique needs of home equity loans.
• Streamlined Compliance: Ensure regulatory requirements are met without unnecessary steps. Learn more about our Compliance & Ops Experience.
• Enhanced Borrower Communication: Provide borrowers with timely updates and transparent processes. Learn more about our Borrower Experience.

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By leveraging Coviance, lenders can process more loans in less time, all while delivering a borrower experience that feels modern, seamless, and intuitive.

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‍Ready to Simplify Your Home Equity Lending?

‍It’s time to move beyond mortgage rules and give home equity loans the processes they deserve. Let Coviance help you streamline your workflows, reduce costs, and deliver an exceptional borrower experience. Book a demo today to learn more.