What can Banks and Credit Unions do When Loan Growth Stagnates?
Equity lending is on the rise. With the steady rise of home prices during 2017, the number of mortgaged properties with equity is now at 48.2 million.* Consumer confidence remains high and unemployment is low which all adds up to more equity-rich homeowners and more HELOC’s. This is quite a change from the bottoming out of home pricing during 2012. In 2012, there were 656,000 HELOC originations compared to 1.2 million HELOC opened during 2016**. It is very unlikely we will return to lending practices that were in place before the great depression.
To capitalize on this opportunity and sell equity credit products to customers and prospects during this rising market, there are several critical strategies that can maximize equity credit balances at the lowest possible costs:
Automotive Refinance Lending
First off, automobile refinance lending is an underutilized widget in the lender’s tool belt, where they can use easily accessible data to target known auto loan borrowers with the opportunity to refinance their existing higher rate auto loan at another financial institution. This is a no-brainer for banks, since the return on investment is so high, and additional lending further cements the banking relationship from existing loans, checking and savings accounts. This sort of program ends up being a win-win for the bank and the borrower, as it grows loan balances from borrowers who meet or exceed predetermined credit criteria while lowering monthly payments for the end user. In uncertain economic times, a lower monthly payment can really be a lifeline.
Mortgage, Home Equity and Line of Credit Lending
A similar strategy can be utilized to grow mortgage, home equity loan and home equity line of credit balances. Once again, you identify borrowers with balances at other financial institutions who meet credit criteria thresholds to target with a loan offer. With the right segmentation and targeting framework, a bank or credit union can conserve marketing dollars, because only those who meet your pre-defined criteria are targeted. Using a data-based approach, a financial institution can avoid having respondents apply who are not approved because of poor credit history, and free up staff to serve qualified borrowers.
While both these concepts primarily focus on loan growth, both do generate deposit relationships via staff cross-sell efforts at loan closing or as part of the requirements to qualify for the promotional loan terms. Banks and credit union that utilize these sorts of programs can successfully grow loans even when growth is stagnant. Remember, data is a catalyst for loan growth. Use it!
Diane Trout-Cummins comes from a 25-year career in bank marketing before joining SourceLink. A Certified Financial Marketing Professional from the American Bankers Association, she is a past president of the Indiana Chapter Bank Marketing Association and past chair of the Bank Marketing Association Chapter Leadership Board. Diane can be reached at *Corelogic 2017 equity report
** Attom Data Solutions