North America Consumer Home Equity Loan Survey

Unlocking home equity lending through a digitally empowered consumer

Signs of a rebound continue to show in the North American home equity lending market. Originations are on the rise, as are home values and consumer optimism. Traditional lenders are becoming more digital as newcomers fuel the competitive pressure. To gain insight on how borrowers are impacted by and influencing market changes, Accenture polled more than 6,000 consumers in the United States and Canada about their home equity loan buying behaviors, preferences and experiences.

This report highlights the findings from the Accenture North America Consumer Home Equity Loan Survey, and suggests ways that lenders can more profitably grow their business.

Table of contents:Executive summary 1A resurgent market for home equity lending 2Market conditions attract new competitors 3Call to action for lenders 4Conclusion: Capture the growth potential 5

Executive summary

The market for home equity lending continues to rebound steadily due to a more favorable economic climate. Originations for home equity loan products increased nearly 15 percent since 2014, with the number of new credit lines at the highest level since the credit crisis in 2008, according to Equifax.1 At the same time, borrowers are being presented with new and simpler alternatives to access funding, presenting a significant threat to traditional retail banks. To capture this expanding market and protect from new entrants, lenders’ first priority should be to invest in digital capabilities to deliver an improved and simplified borrower experience. The outcome for those lenders making the investment include higher market share, better financial results and process efficiencies over time by meeting increasing customer expectations—especially those of an emerging niche of younger, digitally-savvy borrowers.

Accenture’s survey of more than 6,000 consumers in the United States and Canada, conducted in late 2015, also indicates that:

• Borrowers are uneducated about the financial options available to them and some of the key features and benefits of home equity products.

• The needs that are most important to borrowers are the ones where lenders are delivering a less than satisfactory customer experience.

• Lenders are still relying heavily on traditional channels to take applications and process loans, despite borrowers increasing desire for a digital process.

In order to thrive in the home equity market going forward, retail lenders need to invest in new processes and technologies for home equity lending. Lenders need to optimize search advertising and leverage existing and new data sources to drive qualified leads and personalize marketing

campaigns. In addition, they need to deliver a differentiated, digital experience to keep the borrower engaged and in the pipeline. Once an application has been received, lenders need to automate their fulfillment process to reduce cycle times as well as deliver an experience that can provide borrowers the interactions they want based on their preferences. Finally, lenders need to embrace the digital ecosystem and leverage third parties to extend the experience and drive up customer satisfaction.

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Figure 1. Why consumers apply for a home equity loan.

Source: Accenture Research

A resurgent market for home equity lending

A number of signals are pointing to a resurgent market for home equity lending, especially in the United States. Americans are tapping into the steadily growing equity of their homes at a rate not seen since the credit crisis nearly a decade ago.

A key driver of growth in lending demand is the continued rise in home valuations. Black Knight Financial Services’ Mortgage Monitor reports that as of August 2015, Americans had approximately US$7.6 trillion in equity in their homes—a 12.2 percent increase year-over-year—where an estimated $4.5 trillion (59 percent) can potentially be accessed by borrowers.2

Origination levels for both home equity lines of credit (HELOCs) and home equity loans (HELOANs) are on the rise. HELOC originations are at their highest levels since 2008 and up nearly 15 percent year-over-year. HELOANS are seeing a similar growth trajectory with a more than 20 percent increase in origination volume over the last twelve months.3

Accenture survey respondents who anticipate applying for a home equity loan in the next two years are more inclined to do so for positive reasons (Figure 1), such as making improvements and repairs to their homes or to use for other investments. Millennials, for example, cited rising home prices and valuations as the top reasons they expect to apply for a home equity loan within the next 24 months. They are

also expecting to purchase durables, like a washing machine or dishwasher, with their approved loan.

In addition, the survey indicates that on average in North America and the United States, 92 percent of borrowers plan to take a draw of available funds from the loan within six months of closing. Just over two in five people plan to access half or more of a loan’s funds during that same time period. This shows borrowers are confident about the future. Home equity loans are no longer a potential source of cash for unforeseen challenges. Once the loan is closed, borrowers are ready and willing to utilize the funds for home improvements or other investments they feel offer returns that surpass the cost of funds for their home equity loan.

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entrants are coming into the home equity lending market.

Recent non-bank entrants into the home equity lending arena include mono-line, digitally focused lenders, such as Quicken and LoanDepot, and retailers with bank-originated, white label offerings. For example, Costco teamed with First Choice Loan Services to provide mortgage services.4 Home Depot offers a “Project Loan” program for home remodeling.5

A market segment that could be especially challenging to traditional lenders are younger borrowers. According to the Accenture survey, students (41 percent) and those between the ages of 18 and 24 (28 percent) are more willing to apply for a loan with a non-bank lender. As these potential borrowers become more of age to enter the housing market, they will represent

a significant segment of the market and banks need to ensure they are providing the streamlined digital experience expected by this demographic.

Still, the biggest threat could come from alternative lenders like fintech startup Social Finance (SoFi). Based on Accenture Research analysis of CrunchBase data, five of the most prominent alternative lenders based in the United States (including SoFi) together have received more than US$3.6 billion in debt and equity venture funding.6 (Figure 3).

These emerging, free-from-tight-regulation lenders have more flexibility to offer innovative lending products to highly segmented markets, build proprietary credit reporting repositories and attract investment dollars to affect other competitive advantages over banks.

These new entrants have the innovation and capital behind them to present a serious threat to traditional lenders and have already begun to take market share in some lending product segments. While they have been more focused on unsecured personal lending, they are setting the bar for borrowers and have defined expectations for what a younger generation of customers are looking for when applying for loans, especially among millennials. In addition, unsecured loans can be interchangeable with home equity products and used for similar reasons. Retail banks must adapt to these new expectations in order to meet future customer demands. If they fail to do this they risk losing customers to alternative and traditional lenders who embrace the change and bring an experience to customers that aligns with expectations.

Figure 3. Venture Capital Funding in Alternative Lenders.

Source: CrunchBase

Figure 2. Consumer preferences for home equity lender.

Source: Accenture Research

Market conditions attract new competitorsAccording to Accenture research, customers still predominately look to retail banks when beginning the home equity lending search. 65 percent of survey respondents indicated they would prefer to apply for a loan with their primary relationship bank and 14 percent target another retail bank. (Figure 2).

However, banks are at risk of losing that opportunity if they do not innovate given increased competition from new digital players. As the market continues to improve, new and different types of

Figure 5. The satisfaction gap in attributes borrowers rank as most important

Source: Accenture Research

Figure 4. Customer Awareness of Home Equity Loan / Line of Credit Attributes.

Source: Accenture Research

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The Call to action for lendersAs the housing market continues to improve and customers are coming back into the home equity lending market, now is the time for retail bank lenders to focus on some key areas that can differentiate

themselves among established and emerging players.

Borrowers are uneducated on the options

A significant lack of knowledge exists about home equity loan characteristics by borrowers. According to the Accenture

survey just over 40 percent of customers in the US do not know they can borrow to the limit of the loan. Nearly half (46 percent in NA) do not know they can use the loan for non-home purposes. Nearly 60 percent do not know they can access the loan via an online/mobile channel. Finally, nearly 80 percent do not know they access the loan via a credit card. (Figure 4).

Gaps in customer satisfaction relative to borrower priorities

Banks also have work to do in the customer experience area. Survey results show that lenders in North American face customer satisfaction gaps in the lender attributes that borrowers value the most. The same demographic groups that most value their lender as “cost effective and affordable”

and makes “it easy to understand loan terms”—the top two rated attributes of lenders—are least satisfied with lenders’ performance in these areas. (Figure 5) shows the rank of attributes borrowers value as most important side by side with the difference in percentage of satisfaction with the actual experience.

Reliance on traditional channels

Today most home equity loan applications are completed in the branch, particularly in Canada. Just over a fifth of borrowers in the United States who applied for a home equity loan have used some type of digital application during the loan process (Figure 6).

Figure 6. How Customers applied for a Home Equity Loan/Line of Credit in the last 24 months.

Source: Accenture Research

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While branch interaction is by far thedominant channel with today’s originations, the use of digital channels will become increasingly important. The Accenture survey found that nearly all respondents

(93 percent) who used a digital capability during the home equity loan process are highly satisfied proving that banks can utilize the digital channel to deliver their products while still maintaining satisfied

customers. Going forward, lenders will do well to focus on investing in digital capabilities throughout the loan process.

Conclusion: Capture the growth potentialNorth America’s top home equity lenders have a tremendous opportunity to position themselves to capture a market that is coming back to life and protect themselves from new entrants. To do so, they should focus on these 6 key actions.

1. Integrate and optimize search engine marketing

Integrate and optimize search advertising marketing efforts via SEM and SEO to increase presence on first page results. Accenture’s survey found that 81 percent of home equity borrowers conduct research via digital and peer-to-peer sites. This represents a huge opportunity for the lenders that become leaders in this space and puts lenders who don’t at risk of losing those customers. Lenders must compete in this space to stay relevant in the future.

2. Leverage data as a strategic asset

Leverage data as a strategic asset to drive insights into action – who to target, what to offer, when to offer it, and how to personalize it. This has been a relatively untapped opportunity in home equity lending. Lenders have access to large and growing volumes of data and can anticipate needs and proactively send compelling offers to borrowers. Further, traditional

banks have an inherent advantage over alternative lenders due to the large amounts of data available from their existing customer base.

3. Excel at converting leads to loan applications

Excel at converting leads to loan applications. Getting borrowers to your site is not enough. Lenders must provide compelling, simple and intuitive tools to keep the borrower engaged and convert from conducting research to completing a loan application. Digital research tools like loan scenario analysis and calculators are now common place. Additional tools like home improvement estimators – where borrowers can estimate the cost of a home improvement – can differentiate and drive increased conversion rates These estimators must be interactive and simple for borrowers to use or lenders risk a borrower leaving for a better experience.

4. Introduce a customer centric fulfillment model

Introduce a customer centric fulfillment model. Borrower expectations are changing and the traditional lender defined and paper based fulfillment model is becoming archaic. Leading lenders are letting borrowers choose their own experience and are developing omni-channel capabilities to support it. Borrowers should be afforded the option to interact in person, on the

phone or via digital channels. To enable the digital experience, lenders need to provide online application submission, electronic document upload, real-time status updates, e-signature, and e-closing.

5. Automate the fulfillment process

Automate the fulfillment process to significantly shrink cycle times. Reduced cycle times lower operational costs and increase the customer experience – both desirable outcomes for lenders. Lenders should look to integrate with data sources at the point of sale, streamline underwriting with advanced decisioning analytics, introduce robotic process automation to minimize manual involvement, and fully integrate with leading 3rd party providers. These types of changes have an opportunity to significantly reduce cycle time and lower application to close cycles to 10 days or less.

6. Extend the digital ecosystem

Extend the digital ecosystem and create relationships with 3rd parties that will add value to the borrower throughout the experience. Introducing a contractor network that recommends reputable contractors to borrowers or creating relationships that offer discounts at retailers like Home Depot or Lowes gives additional incentive to the borrower and can be differentiating for a lender.

For more information, contact:Terry Moore Senior Managing Director terry.l.moore@accenture.com

Kelly AdkissonManaging Directorkelly.m.adkisson@accenture.com David W. HelinThought Leadership Research Principal DirectorAccenture Researchdavid.w.helin@accenture.com

This document is produced by consultants at Accenture as general guidance. It is not intended to provide specific advice on your circumstances. If you require advice or further details on any matters referred to, please contact your Accenture representative.

Survey Population and Methodology

• Accenture’s Home Equity Loan Survey was conducted between September 7th- 18th, using an on-line panel by a 3rd party provider:

• Margin of error is 1.24 percent with a confidence level of 95 percent

• 6,201 total responses in North America, of which 80 percent (4,948) was for the US and 1,253 for Canada

• 4,999 total responses in North America for those who have applied for a HELOC in the past 2 years (82 percent in US vs. 18 percent in Canada)

• 1,022 total responses in NA for those who would be interested for applying for a HELOC in next 24 months (889 in US and 313 in Canada)

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Notes1. Homeowners Cash In On Equity Boom, Hartford Courant, October 2, 2014, by Ken Harvey2. Black Knight Financial Services’ Mortgage Monitor, September 8, 2015 press release3. Homeowners Cash In On Equity Boom, Hartford Courant, October 2, 2014, by Ken Harvey4. https://costcofinance.com/about-firstchoice-loans/5. http://www.homedepot.com/c/Project_Loan6. CrunchBase, https://www.crunchbase.com/organization/social-finance#/entity

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