MADISON, Wis. -
CUJ: When home values were rising rapidly, homeowners were tapping home equity lines of credit as if they were "free" money. With prices depreciating in most markets, what are you seeing? Still member interest in HELOCs?
Long: There is still demand for HELOC products. Variable Rate HELOCs had become less popular in the last 18 months as fixed rate second mortgages become the home equity product of choice for most members. Understandably, consumers are more aware of the risk associated with borrowing up to 100% of the value of their homes. With moderating home prices, there has been less demand for home equity financing for loan to values greater than 90% or so. However, I think members still see the value and the obvious tax benefits of home- equity financing. I would say that more of the decreasing demand could be related to just a softer economy. Consumers are more hesitant today to make large purchases or do large home improvement projects because of the uncertainties presented by today's economy.
CUJ: Are your CUs marketing HELOCs differently in this new atmosphere? Do you have competitors in your area that are aggressively pricing and/or marketing HELOCs?
Long: We are marketing HELOCs more aggressively in 2007 as opposed to 2006. Competitors continue to offer low "teaser rates" for six months to entice borrowers to tap into their home equity. We recently re-priced our products to be a tad more competitive and are now offering a HELOC with a rate as low as Prime minus 1%. Typically these HELOCs have been priced at Prime or Prime minus .50%. We still find it necessary to offer "No Closing Costs" as consumers are more aware that these offers do exist and can be found with a little research.
CUJ: Will real estate values, and therefore interest in HELOCs, be cooled
Long: Again, I think demand has slowed because of a softer economy, not necessarily declining home values. Certainly, credit unions need to supplement this slowdown in demand with other loan products when possible. For example, we're seeing a lot of growth in first mortgage financing and student lending. As such, we are marketing those products as aggressively as ever. And it makes sense in that a first mortgage and a student loan are really more items of necessity, where as building a swimming pool or buying a $45,000 SUV are more an item of luxury. So, it seems that consumers are slowing down on their consumption of big-ticket purchases and borrowing now more out of necessity.
CUJ: Not many CUs participated in subprime lending the last three years, but do you see subprime lending in your markets? Do you anticipate any problems? Possible collapse of home values that leads to a recession?
Long: It's very hard to say at this point. There has been much press about exotic first mortgage products that put borrowers at risk. However, here in the Midwest, there was certainly less activity in that category than on the coasts and other hotter real estate markets. We haven't seen an issue with our own portfolio, as we weren't really involved with those types of loans. However, when our members come to us in those situations, we need to be prepared to look for ways to serve them.
