Abstract: There's an old saying in the insurance lbusiness: insurance is not bought, it's sold. So with home equity loans and lines of credit. These two products have come back from the dead after the 1992-94 period of extremely low interest rates, which sparked a surge in home refinancing. According to one study, some 10.4 million homeowners refinanced their first mortgages at rates of 7% or lower during the refinancing boom. Not surprisingly, there was a corresponding drop-off in the popularity of the home equity products in the same period. But as rates moved back up again and home equity products regained their earlier appeal, that in turn touched off strong competitive drives for business volume and market a result, much of the home equity business is going to those who are willing and able to market the products very aggressively. Witness these comments: market continues to price these products irrationally, says Peyton Patterson, vice-president and business head in the consumer assets group at New York's Chemical Bank. 'Some of our competitors are out to buy market share. market is very competitive, says Christine Caldwell, vice-president for direct lending at the Bank One Columbus subsidiary of Banc One Corp. competition is huge, says Marilyn Rohrer, vice-president, product development at Boise-based West One Bancorp. Similar statements are heard around the country. The business isn't rolling in by itself: it must be gone after. A 1994 ABA survey of home equity lines of credit (co-authored with the David Olson Research Co.) supplies some per- spective. In the 1987-91 period, home equity lines (HELs) enjoyed huge growth in demand, with bank outstandings rising from $25 billion to around $70 billion. In the 1992-93 period, however, demand flattened considerably, as long-term interest rates fell back to unusually low levels. Homeowners jumped at the chance to refinance their homes at the attractive low rates. The report cited a finding by Fannie Mae that of the total mortgage volume of $1 trillion in 1993,no less than 55% was refinances. In that rate environment, demand was above all for first mortgages, and consumer interest in home equity loans and lines was far less. While some banks managed to buck the trend and continued to put on some new business--Minneapolisbased First Bank System is an example--for many more there was a distinct falloff. The ABA survey summed it up this way: As home equity customers refinanced their loans, they paid off their HELs with a new, larger first lien, usually at a fixed interest rate that was equal to or lower than the adjustable rate they had been paying previously on their equity line. Teasers and waivers And that's how it was through the first half of 1994. But in 1994, rates started moving back up, home equity products began to regain popular interest, and a new race was on. Nonbank lenders, including thrifts, finance companies, mortgage brokers, credit unions, and even the automobile companies' financing arms made strong plays for home equity business. Banks responded with a variety of marketing tactics of their own. Among the most popular is an old standby: introductory rates, usually running for the first six months or year. Bank ads would often lead with the teaser rate forming the whole of the headline. But there have been other approaches. One is the waiver of fees and/or closing costs. At Nationsbank, David Harris, senior vice-president and marketing manager for credit products, says, We're big in stressing no closing costs. It has powerful appeal to consumers. Nationsbank also promoted cashback rebates: Move, say, a $5,000 balance from a competitor and receive a $100 check. Focus groups confirm the popularity of rebates and waivers of closing costs with the public, Harris says. Some banks are attracting customers by simply raising the ante. …
Publication Year: 1995
Publication Date: 1995-04-01
Language: en
Type: article
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