PrivoCorp CEO Sam Verma shared with The Title Report several ways title agents can capitalize on increasing demands for home equity lines of credit (HELOC) and second-lien mortgages.
“In this ever-changing mortgage market, interest rates are much higher than what they were since 2018,” she said. “In the current scenario, almost 97 percent of Americans are below the rate of 5.75 percent. No wonder borrowers do not want to refinance their first liens, and HELOCs and second liens are in high demand this year. More homeowners are showing interest in tapping into their home’s appreciated value.”
According to a Mortgage Monitor Report from Black Knight, there was a 7 percent, or $380 billion, increase in homeowner equity in 2022.
Reports cited by Verma showed homeowners with mortgages have an average of $207,000 in home equity. Data also says $6 trillion of this equity growth was accumulated in the past two years alone.
On average, 23.96 percent of homeowners have recently considered a HELOC to help consolidate some form of debt, according to Verma.
“One reason why homeowners in the U.S. are ‘equity-rich’ is due to rising home prices, which have increased an average of 42 percent since the pandemic began in early 2020,” she said. “Besides, with a major increase in interest rates turning many away from the traditional mortgage origination and refinance, consumers are looking at ways to take out loans from their homes. This has resulted in an increased willingness to use HELOC to tap equity.”
According to TransUnion, even though a borrower’s interest rate on a HELOC may be higher than the interest rate on the mortgage, it is still likely to be lower than the interest rate on a personal loan.
“HELOCs may continue to be the solution for many homeowners for a while, as published by the Urban Institute’s Housing Policy Finance Center,” Verma said. “The report states that cash-out refinance volumes are likely to remain muted for the predictable future due to which most borrowers will continue to be reluctant to give up the ultra-low rates on their existing mortgages.”
Verma expects demand for HELOCs and home equity loans to remain strong through 2023, especially considering the shortage of housing supply and significant equity build-up for existing homeowners.
What do HELOCs mean for title agents?
It is essential that title agents leverage these developments in the home equity market and boost their business opportunity, Verma said.
“Rising mortgage rates and declining purchase affordability means that home equity is one of the few opportunities to help mortgage lenders offset their declining first mortgage volumes,” she said. “However, mortgage companies need a strong partner in the form of title agents who can provide proper guidance and offer various solutions under one roof to reduce cycle time and enable sustained growth.”
When mortgage companies want to engage HELOC consumers, managing the need for new title and tax searches falls directly on title service providers. Most lenders require assistance from title agents in terms of unique search products to support their HELOC initiatives.
“A title search will be needed to determine the existence of any liens, to verify ownership and to check the tax status to determine the extent of equity that is truly built into the loan account,” said Verma. “This is the time for title companies to invigorate their business by accelerating the shift from home originations and refinances into home equity lending.”
Title agents’ services will be required to handle the title, curative, borrower outreach, scheduling, recording and disbursement with convenient settlement options for HELOCs.
Verma cited areas where title agents will play a key role including:
• Title search with taxes and copies, legal description, borrower approval and underwriting
• O&E (ownership and encumbrance) Search
• Legal Description Typing
• Post Recording Updates
“Furthermore, it is necessary that title agents deliver on the HELOC title checks quickly, accurately and securely so that mortgage companies can continue with the mortgage loans in a timely manner,” Verma said. “They will also need to use robust technology solutions backed by a capable operations team to improve several key operational metrics, including processing times for title commitments, time to receive clear to close and customer service responses.”