Statewide, mortgage companies have issued 746 HELOCs this year through the end of August.

While banks and credit unions have long dominated the market for home equity lines of credit, Massachusetts has seen other lenders – both familiar and new – make headway in the second mortgage market amid rapid changes to the industry.  

Some of these newer entrants in home equity lending have taken different approaches to their products and processes. A longtime leader in Massachusetts’ purchase mortgage market, Guaranteed Rate launched a fixed-rate HELOC a few months ago and has already seen uptake for the product.  

Partnering with Guaranteed Rate is financial technology firm Figure, which also provides HELOCs directly to consumers through a five-minute digital application process. In the first half of 2022, Figure ranked among Massachusetts’ top 15 HELOC lenders based on number of loans originated. 

Refis No Longer Attractive 

With rising interest rates likely keeping borrowers from refinancing out of their first mortgages, homeowners could find a competitive landscape as lenders and other companies look to find ways to help them access record high levels of home equity. 

“Most mortgage lenders out there are exploring or have actually launched a home equity product just because they’ve got a lot of excess capacity within their system,” said Jackie Frommer, Figure’s chief operating officer of lending. “They’ve got a lot of customer relationships, and they’re looking to leverage that, and they know the right thing for their customer is not to do a cash-out [refinance], which was the historical answer when there was home price appreciation.” 

Historically low interest rates in 2020 and 2021 have left 73 percent of homeowners nationwide with a mortgage rate below 4 percent, according to John Burns Real Estate Consulting. The consulting firm has also found that homeowners have on average $229,000 in tappable home equity. 

Eric Finnigan, vice president of research and demographics at John Burns Real Estate Consulting, said the amount of tappable equity available to homeowners has provided an opportunity for lenders, fintechs and other companies to find innovative ways to help borrowers access this equity in the coming years. 

“There’s a huge opportunity for homeowners to tap their equity,” Finnigan said. “That just opens up a huge opportunity for innovation, and I think we’ll probably see a lot more of that definitely in the next 12 months if rates stay high.” 

Guaranteed Rate Leverages White-Label Product 

Massachusetts has seen the issuance of HELOCs increase year-over-year by 34 percent this year, while cash-out refinances have dropped by 63 percent, according to The Warren Group, publisher of Banker & Tradesman.  

The Warren Group data shows that Guaranteed Rate’s HELOC activity in Massachusetts began to pick up in May. Through the end of August, the lender had originated 56 loans in the state. Statewide, mortgage companies have issued 746 HELOCs over the same period this year. 

Unlike a traditional HELOC, Guaranteed Rate offers a fixed-rate HELOC. 

“By providing our customers a fixed-rate HELOC option along with an ability to draw, as and when needed, from the comfort of their homes digitally, Guaranteed Rate is fulfilling some key customer needs,” Arun Tripathi, Guaranteed Rate’s head of new secured lending, said in a statement in July announcing the fixed-rate product. 

While Guaranteed Rate offers and closes the loan, the company uses Figure’s product and technology on a white-label basis. 

San Francisco-based Figure, which uses blockchain technology for a variety of financial services, created a HELOC product in 2018. 

“We were getting a fair amount of traction over the last couple of years that we had it and then recently, given where mortgage rates are and given where home price appreciation is, the product has just taken off,” Frommer said. 

Through August, Figure had processed almost 500 HELOCs in Massachusetts. The company processed 192 in all of 2021. 

Fintech Buys Partners’ Loans 

Frommer said the application process for Figure’s direct HELOC takes less than five minutes, and the loan closes within five days, including the three-day recission period. Rather than a rainy-day fund, the entire amount of the loan is considered drawn.   

Diane McLaughlin

“With our product, we’ve seen great performance on it in terms of very minimal losses because we’re underwriting the person today with the need that they have today as opposed to something that they might want to use it in a couple of years,” Frommer said. 

In addition to Guaranteed Rate, the company has partnered with other lenders to offer its HELOC, and Frommer said interest in partnership opportunities continues to grow, including from banks. Currently, Figure buys its partners’ loans and then sells them to investors. While the company has not yet partnered with a bank, Figure is looking at a process that would allow banks to keep loans on their balance sheets. 

Figure is looking to launch other products to help homeowners tap equity, Frommer said, while keeping in mind the ebbs and flows of the market. 

“We’re looking at home appreciation and home value as a theme for us,” Frommer said. “Home equity is sort of the product du jour right now because of where rates are and home prices are, but we’re looking at other products as well that we should be launching just to make sure that when the home equity market is less interesting to people, we’ve got some other products that can diversify our offerings to customers.”