May 8, 2024
No Place Like Home Equity: 2024 Lending Insights
This week, host Matt Snow talks with https://www.linkedin.com/in/mike-shepard-7ba9b313/, Senior VP - Head of Consumer Lending Partnerships at https://careers.usbank.com/global/en, about trends, best practices, and concerns within the world of home...
This week, host Matt Snow talks with Mike Shepard, Senior VP - Head of Consumer Lending Partnerships at U.S. Bank, about trends, best practices, and concerns within the world of home equity lending. 2022 was a strong year for the industry despite the upward trajectory of interest rates, and homeowners are continuing to leverage home equity for purposes like debt consolidation and home improvement projects. Still, the industry remains in flux — with regulatory developments, consumer sentiment, and tech advancements shaping the scope of best practices.
Leveraging his years of experience in the industry, as well as his role as chair of the Home Equity Lending Committee, Mike provides plenty of actionable insights for lenders and consumers alike.
Join Matt and Mike as they discuss:
- The main challenges of today’s home equity lending market
- What factors are contributing to Matt’s sense of cautious optimism regarding home values
- The vital role of collaboration within institutions like the Home Equity Lending Committee.
- How the uses of home equity funds have shifted over the years
WEBVTT
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You are listening to Leaders in Lending
from Upstart, a podcast dedicated to helping
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consumer lenders grow their programs and improve
their product offerings. Each week, here,
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decision makers in the finance industry offer
insights into the future of the lending
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industry, best practices around digital transformation, and more. Let's get into the
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show. Hi, Welcome everyone.
I'm Matt Snowe here with another episode of
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Leaders in Lending here at CBA Live, joined by Mike Shephard, chair of
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the Home Equity Committee. Welcome Mike. Yeah, thanks, nice to be
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with you. Yeah. Absolutely,
So why don't you maybe start by explaining
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your role as the chair of the
Home Equity Committee. Yeah sounds good.
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So yeah. So CBA has several
committees that they put together, and one
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of them is focused on home equity
lending, and so I'm the chair of
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that particular committee. Me. It's
made up of about forty banks or so,
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and they're all varying degrees of size, right, which actually is one
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of the interesting things about the committee
is you have very large organizations like US
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Bank and Bank of America Bank of
America participate, but you also have then
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several smaller organizations and so you know, like I said, it's about forty
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members and we get together on a
regular basis to talk about different areas of
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the business they're impacting each of us
and kind of sharing best practices. Okay,
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great, And you've been in banking
for some time. It's always funny
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listening to some of the past episodes
and how people get into banking, and
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it seems like almost not many people
grow up as you had, like dreaming
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of being a banker. What's your
story a little bit? Was that always
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a goal career goal of yours of
Yeah, so I am a longtime US
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banker. This is year twenty seven
at the bank, so I've been around
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a long time seeing the organization grow
in different ways. Yeah. I think
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we all say we are accidental bankers
in some way, shape or form.
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What's interesting is, you know,
my background was actually in call centers and
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ultimately just got into kind of product
development and so started at the bank and
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at an early stage and really got
into product design and have had the fortune
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to be in a variety of different
business units, whether it's out of traditional
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retail, lending, cards, prepaid
things like that. But it's a really
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interesting I think just space that's focused
on like solving customer problems. When the
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day is done, right and we
therevers stuff. They discussion about this yesterday
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about how banks can help facilitate really
the end goal for the consumer and home
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ownership and saving for whatever they're looking
to do in the future, and that
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I think is always the interesting part
is how can we be part of solving
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the problems that consumers have in mainishing
their day to day finances. Yeah.
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I find that's one one of the
things I like about conferences es, especially
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the CBA. It's really centering.
It brings you back to, you know,
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what we're trying to do in terms
of solving problems for the consumers.
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Yeah. And if you think about
the theme for this year is for the
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people, which is you know,
right squarely in the center of Obviously we're
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here to serve customers. Whether they're
retail consumers, small businesses, it doesn't
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matter, right, I mean,
for the people is what it's all about.
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Yeah, definitely. And so maybe
back to the committee, tell me
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more about like the role of the
committee. You know, what what do
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you guys do in terms of policy
benchmarking some of the studies you do.
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Yeah, I think one of the
things that's interesting is back to the point
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that we have such a varying degree
of size, right, we're able to
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really use it as a chance to
share what's happening at kind of the macro
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level. How is each institution looking
at this, How are they looking at
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what's happening, you know, not
getting into in anything proprietary, but what's
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happening in the business, right,
And that's the benefit of CBA as a
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total right to be able to bring
together all of the institutions that are part
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of the CBA family. And so
we spend time, right, so we
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get into kids of monthly meetings,
and then we actually have a couple of
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subcommittees that also ntion that allow us
to go deeper into specific topics, whether
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it's risk or fulfillment or potentially or
be on the product side. And so
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we just get into this routine that
allows us to share what's happening. And
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then honestly, right, you do
learn something. I learned something from you
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know, some of the smaller institutions, and I've heard directly from members about
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how they learn when they're able to
talk directly with large institutions as well.
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And that's ultimately I think is you
know, collaboration as a word videos a
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lot both upon our committee as well
as for I think CBA overall. How
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are we able to collaborate to kind
of raise the bar for everybody? Oh?
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Nice? And I'm sure you know
we're all experiencing the impact of the
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changing and rising rate environment. I'm
sure that's a hot topic. Like how
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are you seeing that impact home equity
specifically? Yeah, so home equity.
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The industry of home equity is interesting
because it's obviously been kind of in a
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state of flux and in a state
of fluck for several years now post financial
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crisis. You know, twenty twenty
two was a really strong year for the
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industry. We saw balances grow for
the market overall. Obviously, institutions were
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seeing some individual success and that was
really driven off of if you just remember
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at the significant and increase in interest
rates that occurred, and so cash out
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refives really dried up, and as
consumers wanted to continue deliverage the equity they
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had on the home, they were
able to use that through a traditional home
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equity loan or home equity lineup credit. Yeah, you know, now you
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get into twenty three in early twenty
four, you know, you have rates
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that are higher, which then there's
a there's a perceptual challenge that consumers still
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have about you know, in is
a rate that is pick a number eight
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ten percent, which is higher than
what they're used to. And so I
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think we're all then we're seeing that
now transpire in originations. We're definitely softer
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in twenty three versus what we saw
in twenty twenty two, and even twenty
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twenty four is starting a little bit
off that same way now on the flip
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side, I think what we also
are seeing though is a significant change and
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reduction and nutrition because people would have
historically, if they had an existing home
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equity account, they may have paid
that off as they refinanced their first mortgage,
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and that refinance activity is slow,
which is then providing some relief and
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some benefit on the home equity balance
as side. So while originations maybe slowing,
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your balances are starting to hold their
own because you're you're not seeing as
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much attrition, okay, and credit
quality quality pretty stable through that time for
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sure. Yeah, I mean I
think we definitely have seen I think some
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changes in the through the door and
these are the things that we we actually
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had a committee meeting on Sunday and
we're able to talk a little bit about
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this. You know, some of
the through the door populations are changing,
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yeah, with a little bit.
You know, still very much in kind
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of the prime space, but but
going out a little bit because some of
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the consumers may have historically used a
cash out refi and now they're not.
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They're going to go to a home
equity as a way to facilitate the way
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to extract the equity in their home. But you know, banks are still
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very sound and their credit guidelines in
certainly your determination of credit, your ability
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to repay, as well as then
the collateral valuations a way I'll have to
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do in making a decision I'm offering
that loan. Yeah, and what about
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like the consumer in terms of like
how they think about just the awareness of
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the product, how they use the
funds. You see that changing as things
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are getting more expensive. Cars are
more expensive. I was talking to Mark
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and Melinda about that yesterday. You
know, how are people using the funds
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that are thinking about home equity as
a tool in their financial tool case.
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Yeah, so these single you know, number one intended use is still about
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home improvement, not a surprise.
And then the second is that consolidation and
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again meeting get into detail, but
I think I've definitely heard some from some
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of my colleagues that there's an increasing
mix towards that consolidation versus home improvement,
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but it is still the overwhelming intended
use is still on home improvement. And
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you know, and I think we're
all then still very kind of optimistic about
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the future because consumers are locked into
very low first mortgage rates and as they
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are thinking about upgrading their house,
they may then use the equity that they
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have in their home to upgrade it, versus being you know, moving to
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another house in their neighborhood or into
another part of the city that they're in
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because they want to keep that three
percent four percent mortgage rate that they have
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on their first mortgage. And so, you know, we think there's still,
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you know, between all the tappable
equity that consumers have and then kind
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of very low mortgage rates that does
create a really compelling opportunity for an asset
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class like home equity. Yeah,
and I can't remember where this was,
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but I was talking to someone else
too who mentioned like the additions on houses
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up like building. Yes, you
know, vertically is much more popular now
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because it's it's cheaper them that.
Yeah. So one of the use cases
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that I know several of us are
looking at is what they call ADUs accessory
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dwelling units, And it's a really
interesting new kind of use case that's coming
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around how people can either add a
standalone kind of unit in their backyard or
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potentially doing an addition above a garage
or something like that. And it may
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start out as a as a as
a rental property and then could transition into
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a living space for an elderly parent
or something like that to move in.
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And so it really becomes an interesting
way to be able to use your existing
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property, stay in that, use
the equity that you have, and then
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kind of expand over time. Yeah. Are there any other upstream or downstream
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impacts of things that you guys are
forecasting, like changes in the market,
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home prices, inventory that that are
driving that as well? You know,
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I think everybody is still relatively optimistic
about home values right when I can see
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page or drop off. I think
the industry still feels like, you know,
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it's going to be stable. There's
not going to be you know,
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probably not the same level of home
appreciation, but not a big drop off,
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and certainly there can be very different
you know, pockets of the country
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based off of certain geographies, but
overall home press appreciation appears to be quite
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strong maintaining. And then it really
comes down to, right, the consumers
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comfort in taking on that additional debt, right, because that's the part that
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I think, you know, back
to what we said in more high in
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rates is part of it than the
psychology of right, I'm a comfortable taking
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on or borrowing another pick a number, right, thirty sixty eighty thousand dollars
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to be able to do this work, knowing that I have to now have
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that monthly payment into my budget.
Yeah, that's interesting. So the consumers
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almost become a resource of like a
barometer on the industry as well or where
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they think it's going to go.
The wage growth, employment which seems surprisingly
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resilient still correct, So that's kind
of their their sentiment. Yeah, yeah,
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I mean, if a consumer feels
optimistic about their job and and what's
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going to happen to their house,
right, they may feel more comfortable than
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making these investments. And some of
this that also becomes almost forced. Right,
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if you are having your second child, or if you're having you know,
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kind of an expansion in your family
and you need to add additional square
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footage versus again to you, you
can't afford to move to another house,
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so you're gonna then stay in at
existing house with your little monthly payment on
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your mortgage and then have that additional
uh you know payment into it with the
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home equity. Gotcha. So maybe
back to the committee for a minute,
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like talk more about the member benefits
there. Are you collecting data from the
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banks that are members of that doing
benchmarking or what kind of other feedback are
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you getting. Yeah, so we
don't collect, we don't do anything as
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individual members, and c ME doesn't
facilitate that. But there are several kind
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of consortiums that collect information and then
are and and they're used to help kind
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of give us an idea what's happening
in the market, both on the origination
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side as well as on the balance
and the portfolio side, which is important.
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Right. We we tend to spend
a lot of time talking about genations
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and what's happening with new accounts and
applications and all that stuff. But so
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you know, my earlier point,
when you have such a change in EU
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attrition, your portfolio performance and also
becomes really important and so you know,
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the committee then will use insights from
companies like that to help then you know,
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what are we seeing and really driving
different behaviors on you know, kind
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of your through the door profile and
an even the kind of some of your
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pull through rates and things like that. So the Committee doesn't do that companies,
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but you know there's third parties that
will do that, and then you
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know, many times you will ask
them to come in and share what they're
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seeing for the market so that you
know everybody on the committee has that same
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understanding. Any geographic patterns that the
people are saying, not a ton.
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I mean, I think you would
expect, you know, kind of the
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typical and the large metroma halted areas. There hasn't been any major that we're
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seeing any fundamental kind of changes based
off of your again, you're through the
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door, your credit profiles for start
geographies, that's one. Like everybody has
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felt pretty good about kind of where
the markets are at and the biggest variable
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all that, quite frankly, is
just your home appreciation. Yeah, gotcha.
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and now back to the show.
Another thing interesting about the CBA is
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on the floor in sessions lots of
presence of regulators. So how do you
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guys interface with policymakers, regulators and
think about your role in that capacity?
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Yeah, I mean certainly that's a
key part of what CBA is all about,
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is their ability to then represent the
industry to then help make influence either
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with regulators or on Capitol Hill through
through Dave and Sam and so. Right
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as there are things that are coming
up that they are educating us, which
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I think is an important part because
obviously we're not close to that day in
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and day out. So we utilize
those guys to help educate us of what
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they're hearing and what they think might
be coming up. And then also then
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how we can then utilize them to
be able to influence, you know,
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if there's something that we want to
make sure is accurately represented from a home
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equity perspective, and some of this
may not be home equity specific, right,
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because it may be about residential real
estate, whether it's mortgage or home
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equity. Can we kind of get
lumped into just the broader you know,
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real estate lending use case, But
that's really in a part of how do
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we use CBA, How does how
didn's forty one banks ultimately kind of represent
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their institutions as well as all institutions
to be able to then help influence if
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there's something coming on the policy side. Gotcha, are there any major changes
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that you guys are are specifically we're
not on what no, right, So
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obviously there's a lot of other things
happening at the Bureau and on the and
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on the hill and not gonna win
at this point. We haven't had anything
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that's that's coming that that that is
you know, on the foreseeable future.
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Gotcha, Yeah, I hope,
queen. I think a pretty stable,
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like reputable product. I know we've
also talked about other maybe like unsecure or
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small dollar lending that you've got some
experience in. Maybe share some of the
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compare and contrast some of those products
in your experience, how the consumers are
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using them, how they're viewed from
a regulation. Yeah, well, the
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day is done, right. I
think we tend to spend a lot of
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time, like we talk a lot
about products, and we also need to
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take a step back and think,
I mean, the consumer needs access to
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money to be able to buy goods
and services, and how do we think
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about those underlying reasons why they need
money first and less about products initially,
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And so unsecured is a great exailple
right. If a consumer needs access to
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thirty thousand dollars, may able to
do some work on their house, which
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is a pretty typical home equity use
case. Those are squarely in the sweet
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spot for some traditional unsecured loans.
And so we spent a lot of time.
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One of our sessions yesterday actually was
kind of this debate and discussion about
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unsecured versus home equity, Where does
it begin? Where does it end?
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Obviously, you always want to be
thinking about what is in the best interests
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of the consumer first, and it's
not just always about price. It's about
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convenience and simplicity and cost and all
that stuff. And each product has different
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pros and cons and so we definitely
spend a lot of time thinking, Okay,
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I mean, all the institutions,
how does you know a larger dollar
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amount, a longer term, a
monthly payment, interest rate all factor into
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that solution that makes the most sense
for the consumer. But for the industry,
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you know, home equity and unsecured
have done kind of competitors at times
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and kind of compliments at times.
So I think there's this there is a
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balance there. But certainly, you
know, we know that unsecured is,
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in particular in some of the point
of sale situations, are very much used
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as an alternative home improvement. Yeah. I like that anchoring back, like
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we started with, you know,
what is the consumer need that we're trying
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to solve, which can be sometimes
hard, especially as any organization is going
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to be broken up organized around products. Right, You're trying to develop something
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specific to bring to market anything the
committee is seeing or are people talking about
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innovations in you know, how they
structure organizations develop products to you know,
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make it simpler for the consumer to
say here's the need I have versus you
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know, someone going in like you
might go into a traditional retail store and
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say, here's the product I'm looking
for off the shelf. Yeah. I
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don't know if there's anything innovation innovative
necessarily, but I think there's much more
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of a mindset of connect acting with
your stakeholders within the organization if you don't
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have unsecured, like how our home
equity people connect you with unsecured. And
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what's interesting about the committee is,
you know, we have people that represent
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home equity and mortgage, and we
have people that represent home equity and unsecured,
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and so like you get very different. Like some people are like,
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well, I'm thinking about it through
the lens of kind of that use case
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through home equity and unsecured, and
others are like, well, I'm thinking
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about the kind of residents real estate, and I need to be very intentional
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to talk to my unsecured colleagues,
whether that's in you know, kind of
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unsecure versual home. We also can't
lose out of credit cards, right obviously
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credit cards or right, you know, it can be an enabler for a
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consumer to make a eight to ten
thousand dollars purchase with a really relatively low
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interest rate. So there isn't necessarily
anything innovative in tech that we've talked about,
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but I definitely hear more from my
colleagues about how they're proactively reaching out.
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And also then you know, how
are risk people talking? Right,
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So what is our risk poblicies for
unsecured versus home equity? And where is
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there the larties and where are the
differences? So it all is kind of
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just I'll go back to collaboration,
right, Yeah, and that collaboration and
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coordination at the committee level in addition
to and individual institutions. Yeah, and
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I can imagine that could be really
hard, especially in the financial services industry.
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You'd like a clear answer, like
you can't really ab test like if
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they give this person a personal loan
versus a whole equity loan, Like how
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are they going to perform? What's
their long term relationship? That is?
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That would be an idel state.
You got to have a little bit more
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time, you know, and you
could do some creative things around potential some
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of your marketing pages on your website
or things like that. But ultimately,
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yeah, I mean, the data
is done. They need to take a
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PRODUCTY or a product B. Yeah, and then go down a particular path.
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And another theme I'm seeing this week, and it could be my own
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bias for the things I'm looking for, is just around artificial intelligence again,
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the ability to make things more automated, the ability to help serve the consumer,
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get them their questions and needs answered
faster. How are you seeing that
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come through in the whole equity space. Yeah, I think I think come
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equity is I'm a baseball guy,
right, so I think we're in the
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maybe the top or bottom of the
first inning on our equity side relative to
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potentially other use cases and other products. Partly because you know this is still
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a and I think it's right for
opportunity, but it's so early, because
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you know the process is still quite
manual. How do you then find ways
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to be able to use additional data, additional technologies to be able to automate
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but not then increase your risk or
exposure. Sure, and that's the uncertainty
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that I think a lot of institutions
have is how can I bring that in
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but not then and also then obviously
still continue to comply with all the necessary
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regulations and rules, but not then
always forced the consumer to bring us documents.
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So that's an area that the Committee
has spent a lot of time on
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over the years. Is it is
just where are there opportunities for us collectively
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to simplify and automate? And certainly
there are some new engines that are doing
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that and setting up our height and
that's good, right. I mean,
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I think the the industry needs to
be pushed to be able to say,
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how do we then all step up
to be able to then deliver some of
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the similar experiences that that new entrants
are providing. Yeah, are you saying
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like safer areas to start in?
Is it verification, is it underwriting?
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Is it in the you know,
the user experience. I think it's going
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to be more on the kind of
on the the collection of documentation. Okay,
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as your as your starting point,
Yeah, I think beyond that,
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I think it's it gets a little
bit tricky, and I think less aptitude
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or interest in trying some of those
things initially. Yeah, yeah, interesting,
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What are some other trends that maybe
you're seeing either in in credit quality
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in general or again the interpretation of
that data through the door population. Is
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there any Yeah? You know,
I think the other thing we spent on
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quite a bit of time talking about
the other day and our meeting was just
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overall client engagement through activation. And
so obviously with a with a my cold
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line of credit, right we'll give
a We'll give a home leutner a line
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that they can then use when it's
convenient for them and when they need it.
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And so we were like, what
are we seeing differences in your number
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of consumers that are taking and draw
or using it initially and then long term
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utilization rates as well? And I
think there was definitely that's one that everybody's
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keep watching because obviously, right we
you want to give the consumer access to
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a line of credit demandle to use
over time, but if they don't use
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it, that is, you know, that doesn't add any value to us
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initially. So where is there that
right balance? And so I think we'll
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continue to talk through that just what
are we seeing and what does that look
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like based off of different credit profiles
in different geographic areas and things like that.
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It's like, is there anything any
you know, core trend that's happening.
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But that's one that I think we
all are watching because you you definitely
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are starting to see it and we
are starting to see some improvement in utilization
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rates, which then speaks to consumer
demand and the interest in using those that
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open credit to then make these purchases. Okay, is there a lot of
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interaction with other committees or how I
think about the CBA is a whole.
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Yeah, that's definitely an area.
So each of us kind of establish some
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targets and some abjectors for the year, and that's one that we are being
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much more mindful of. The one
the two that we're connecting with is fraud
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and then CRA because those are areas
that are you know, fraud is just
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an area that we all need to
be mindfuluff. It's real and and so
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what is what is the Fraud committee
seen and how can then you know,
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we kind of work together with them
and just begin all in the spirit of
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joint learning and joint sharing of information. And then the same thing on CIRA,
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right, I mean, obviously home
equity can be used as a way
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to facilitate cra lending and what are
they seeing, how does that work?
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New rules, all that stuff.
So definitely an area we want to be
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spending a little bit more time on. Yeah, fraud I imagine is one
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that is pretty safe where everyone wants
to make that as minimal as possible.
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So any insight you can share people
are probably yeah. And this storically fraud
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on home equity lines of credit hasn't
been a big area for us, you
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know. Now I think every institution
is starting to realize both on the new
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account of origination side as well as
then the existing customer when they have that
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one hundred thousand dollars line of credit
that's sitting out there, what are the
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tactics one of the things being done
to minimize any potential fraud losses through account
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takeover things like that. So again, in few years ago, was it
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a hot time scenario that we wanted
to spending more time. Interesting so that
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you mentioned the committee. Obviously a
great way to continue to learn are the
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things I mean selfishly for me,
I'm trying to put together a network of
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things to learn from as well,
Like are there thought leaders, publications,
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things that you follow externally to kind
of keep up to date on everything going
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on. Yeah, that's a good
question. So you know, we all
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are looking at different forms of data
at different ports and all that stuff.
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You know. The one that I
spent a lot of time on is the
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New York FEDDOS setting on household debt
every quarter. It's interesting, right because
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it actually gives kind of a complete
picture of all that It's not just about
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home equity. It's about what's happening
with mortgage balances, credit card balance is
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autohole equity and so and then they
go a little bit deeper then into some
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credit profiles and some different transponencies and
things like that. And so that to
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me is you know, we because
when the day is done right, the
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home equity is a part of the
consumers that want we'll call it right and
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and and how does this fit in
with what's happening kind of in the bigger
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picture. So that's when we spent
a lot of time on. And then
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you know, there's there's a variety
of things that come through, you know,
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like through Black Night and Cure and
os it other kind of industry groups
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that are then providing information about what's
happening in the market, what's happening kind
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of in the individual segments that all
of us absorbing used to help kind of
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define what's happening. Okay, great, well, I guess you know.
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The last opportunity for you is anything
you want to plug or if folks wanted
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to get involved in the CBA or
on a committee, what's the path for
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them to do that? Yeah,
certainly right. I mean, I think
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if anybody's interested in learning more about
what we do, they can reach out
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to me. We've got our CBA
context as well that we can then put
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them in contact with. But it's
a great group of people. It allows
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us, like I said, to
interact and share and learn and hopefully when
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the day is done kind of all
raise the bar for everybody. Awesome.
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Yeah, well, I appreciate the
time, Mike. It was great to
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00:25:08.880 --> 00:25:11.000
me again, and I enjoy the
rest of the shows. And that's good.
387
00:25:11.000 --> 00:25:15.039
Thanks. Thanks. Upstart partners with
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388
00:25:15.119 --> 00:25:21.240
and expand consumer lending through its leading
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can help you find more credit worthy
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You are listening to Leaders in Lending
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consumer lenders grow their programs and improve
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industry, best practices around digital transformation, and more. Let's get into the
5
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show. Hi, Welcome everyone.
I'm Matt Snowe here with another episode of
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Leaders in Lending here at CBA Live, joined by Mike Shephard, chair of
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the Home Equity Committee. Welcome Mike. Yeah, thanks, nice to be
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with you. Yeah. Absolutely,
So why don't you maybe start by explaining
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your role as the chair of the
Home Equity Committee. Yeah sounds good.
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So yeah. So CBA has several
committees that they put together, and one
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of them is focused on home equity
lending, and so I'm the chair of
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that particular committee. Me. It's
made up of about forty banks or so,
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and they're all varying degrees of size, right, which actually is one
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of the interesting things about the committee
is you have very large organizations like US
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Bank and Bank of America Bank of
America participate, but you also have then
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several smaller organizations and so you know, like I said, it's about forty
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members and we get together on a
regular basis to talk about different areas of
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the business they're impacting each of us
and kind of sharing best practices. Okay,
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great, And you've been in banking
for some time. It's always funny
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listening to some of the past episodes
and how people get into banking, and
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it seems like almost not many people
grow up as you had, like dreaming
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of being a banker. What's your
story a little bit? Was that always
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a goal career goal of yours of
Yeah, so I am a longtime US
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banker. This is year twenty seven
at the bank, so I've been around
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a long time seeing the organization grow
in different ways. Yeah. I think
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we all say we are accidental bankers
in some way, shape or form.
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What's interesting is, you know,
my background was actually in call centers and
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ultimately just got into kind of product
development and so started at the bank and
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at an early stage and really got
into product design and have had the fortune
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to be in a variety of different
business units, whether it's out of traditional
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retail, lending, cards, prepaid
things like that. But it's a really
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interesting I think just space that's focused
on like solving customer problems. When the
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day is done, right and we
therevers stuff. They discussion about this yesterday
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about how banks can help facilitate really
the end goal for the consumer and home
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ownership and saving for whatever they're looking
to do in the future, and that
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I think is always the interesting part
is how can we be part of solving
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the problems that consumers have in mainishing
their day to day finances. Yeah.
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I find that's one one of the
things I like about conferences es, especially
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the CBA. It's really centering.
It brings you back to, you know,
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what we're trying to do in terms
of solving problems for the consumers.
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Yeah. And if you think about
the theme for this year is for the
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people, which is you know,
right squarely in the center of Obviously we're
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here to serve customers. Whether they're
retail consumers, small businesses, it doesn't
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matter, right, I mean,
for the people is what it's all about.
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Yeah, definitely. And so maybe
back to the committee, tell me
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more about like the role of the
committee. You know, what what do
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you guys do in terms of policy
benchmarking some of the studies you do.
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Yeah, I think one of the
things that's interesting is back to the point
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that we have such a varying degree
of size, right, we're able to
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really use it as a chance to
share what's happening at kind of the macro
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level. How is each institution looking
at this, How are they looking at
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what's happening, you know, not
getting into in anything proprietary, but what's
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happening in the business, right,
And that's the benefit of CBA as a
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total right to be able to bring
together all of the institutions that are part
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of the CBA family. And so
we spend time, right, so we
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get into kids of monthly meetings,
and then we actually have a couple of
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subcommittees that also ntion that allow us
to go deeper into specific topics, whether
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it's risk or fulfillment or potentially or
be on the product side. And so
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we just get into this routine that
allows us to share what's happening. And
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then honestly, right, you do
learn something. I learned something from you
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know, some of the smaller institutions, and I've heard directly from members about
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how they learn when they're able to
talk directly with large institutions as well.
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And that's ultimately I think is you
know, collaboration as a word videos a
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lot both upon our committee as well
as for I think CBA overall. How
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are we able to collaborate to kind
of raise the bar for everybody? Oh?
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Nice? And I'm sure you know
we're all experiencing the impact of the
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changing and rising rate environment. I'm
sure that's a hot topic. Like how
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are you seeing that impact home equity
specifically? Yeah, so home equity.
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The industry of home equity is interesting
because it's obviously been kind of in a
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state of flux and in a state
of fluck for several years now post financial
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crisis. You know, twenty twenty
two was a really strong year for the
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industry. We saw balances grow for
the market overall. Obviously, institutions were
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seeing some individual success and that was
really driven off of if you just remember
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at the significant and increase in interest
rates that occurred, and so cash out
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refives really dried up, and as
consumers wanted to continue deliverage the equity they
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had on the home, they were
able to use that through a traditional home
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equity loan or home equity lineup credit. Yeah, you know, now you
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get into twenty three in early twenty
four, you know, you have rates
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that are higher, which then there's
a there's a perceptual challenge that consumers still
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have about you know, in is
a rate that is pick a number eight
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ten percent, which is higher than
what they're used to. And so I
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think we're all then we're seeing that
now transpire in originations. We're definitely softer
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in twenty three versus what we saw
in twenty twenty two, and even twenty
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twenty four is starting a little bit
off that same way now on the flip
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side, I think what we also
are seeing though is a significant change and
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reduction and nutrition because people would have
historically, if they had an existing home
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equity account, they may have paid
that off as they refinanced their first mortgage,
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and that refinance activity is slow,
which is then providing some relief and
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some benefit on the home equity balance
as side. So while originations maybe slowing,
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your balances are starting to hold their
own because you're you're not seeing as
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much attrition, okay, and credit
quality quality pretty stable through that time for
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sure. Yeah, I mean I
think we definitely have seen I think some
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changes in the through the door and
these are the things that we we actually
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had a committee meeting on Sunday and
we're able to talk a little bit about
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this. You know, some of
the through the door populations are changing,
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yeah, with a little bit.
You know, still very much in kind
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of the prime space, but but
going out a little bit because some of
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the consumers may have historically used a
cash out refi and now they're not.
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They're going to go to a home
equity as a way to facilitate the way
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to extract the equity in their home. But you know, banks are still
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very sound and their credit guidelines in
certainly your determination of credit, your ability
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to repay, as well as then
the collateral valuations a way I'll have to
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do in making a decision I'm offering
that loan. Yeah, and what about
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like the consumer in terms of like
how they think about just the awareness of
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the product, how they use the
funds. You see that changing as things
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are getting more expensive. Cars are
more expensive. I was talking to Mark
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and Melinda about that yesterday. You
know, how are people using the funds
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that are thinking about home equity as
a tool in their financial tool case.
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Yeah, so these single you know, number one intended use is still about
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home improvement, not a surprise.
And then the second is that consolidation and
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again meeting get into detail, but
I think I've definitely heard some from some
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of my colleagues that there's an increasing
mix towards that consolidation versus home improvement,
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but it is still the overwhelming intended
use is still on home improvement. And
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you know, and I think we're
all then still very kind of optimistic about
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the future because consumers are locked into
very low first mortgage rates and as they
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are thinking about upgrading their house,
they may then use the equity that they
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have in their home to upgrade it, versus being you know, moving to
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another house in their neighborhood or into
another part of the city that they're in
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because they want to keep that three
percent four percent mortgage rate that they have
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on their first mortgage. And so, you know, we think there's still,
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you know, between all the tappable
equity that consumers have and then kind
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of very low mortgage rates that does
create a really compelling opportunity for an asset
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class like home equity. Yeah,
and I can't remember where this was,
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but I was talking to someone else
too who mentioned like the additions on houses
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up like building. Yes, you
know, vertically is much more popular now
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because it's it's cheaper them that.
Yeah. So one of the use cases
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that I know several of us are
looking at is what they call ADUs accessory
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dwelling units, And it's a really
interesting new kind of use case that's coming
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around how people can either add a
standalone kind of unit in their backyard or
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potentially doing an addition above a garage
or something like that. And it may
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start out as a as a as
a rental property and then could transition into
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a living space for an elderly parent
or something like that to move in.
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And so it really becomes an interesting
way to be able to use your existing
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property, stay in that, use
the equity that you have, and then
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kind of expand over time. Yeah. Are there any other upstream or downstream
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impacts of things that you guys are
forecasting, like changes in the market,
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home prices, inventory that that are
driving that as well? You know,
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I think everybody is still relatively optimistic
about home values right when I can see
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page or drop off. I think
the industry still feels like, you know,
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it's going to be stable. There's
not going to be you know,
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probably not the same level of home
appreciation, but not a big drop off,
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and certainly there can be very different
you know, pockets of the country
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based off of certain geographies, but
overall home press appreciation appears to be quite
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strong maintaining. And then it really
comes down to, right, the consumers
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comfort in taking on that additional debt, right, because that's the part that
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I think, you know, back
to what we said in more high in
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rates is part of it than the
psychology of right, I'm a comfortable taking
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on or borrowing another pick a number, right, thirty sixty eighty thousand dollars
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to be able to do this work, knowing that I have to now have
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that monthly payment into my budget.
Yeah, that's interesting. So the consumers
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almost become a resource of like a
barometer on the industry as well or where
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they think it's going to go.
The wage growth, employment which seems surprisingly
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resilient still correct, So that's kind
of their their sentiment. Yeah, yeah,
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I mean, if a consumer feels
optimistic about their job and and what's
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going to happen to their house,
right, they may feel more comfortable than
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making these investments. And some of
this that also becomes almost forced. Right,
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if you are having your second child, or if you're having you know,
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kind of an expansion in your family
and you need to add additional square
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footage versus again to you, you
can't afford to move to another house,
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so you're gonna then stay in at
existing house with your little monthly payment on
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your mortgage and then have that additional
uh you know payment into it with the
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home equity. Gotcha. So maybe
back to the committee for a minute,
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like talk more about the member benefits
there. Are you collecting data from the
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banks that are members of that doing
benchmarking or what kind of other feedback are
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you getting. Yeah, so we
don't collect, we don't do anything as
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individual members, and c ME doesn't
facilitate that. But there are several kind
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of consortiums that collect information and then
are and and they're used to help kind
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of give us an idea what's happening
in the market, both on the origination
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side as well as on the balance
and the portfolio side, which is important.
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Right. We we tend to spend
a lot of time talking about genations
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and what's happening with new accounts and
applications and all that stuff. But so
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you know, my earlier point,
when you have such a change in EU
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attrition, your portfolio performance and also
becomes really important and so you know,
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the committee then will use insights from
companies like that to help then you know,
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what are we seeing and really driving
different behaviors on you know, kind
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of your through the door profile and
an even the kind of some of your
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pull through rates and things like that. So the Committee doesn't do that companies,
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but you know there's third parties that
will do that, and then you
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know, many times you will ask
them to come in and share what they're
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seeing for the market so that you
know everybody on the committee has that same
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understanding. Any geographic patterns that the
people are saying, not a ton.
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I mean, I think you would
expect, you know, kind of the
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typical and the large metroma halted areas. There hasn't been any major that we're
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seeing any fundamental kind of changes based
off of your again, you're through the
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door, your credit profiles for start
geographies, that's one. Like everybody has
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00:12:05.799 --> 00:12:09.039
felt pretty good about kind of where
the markets are at and the biggest variable
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all that, quite frankly, is
just your home appreciation. Yeah, gotcha.
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Another thing interesting about the CBA is
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on the floor in sessions lots of
presence of regulators. So how do you
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guys interface with policymakers, regulators and
think about your role in that capacity?
200
00:13:09.440 --> 00:13:13.039
Yeah, I mean certainly that's a
key part of what CBA is all about,
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is their ability to then represent the
industry to then help make influence either
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with regulators or on Capitol Hill through
through Dave and Sam and so. Right
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as there are things that are coming
up that they are educating us, which
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I think is an important part because
obviously we're not close to that day in
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and day out. So we utilize
those guys to help educate us of what
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they're hearing and what they think might
be coming up. And then also then
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how we can then utilize them to
be able to influence, you know,
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if there's something that we want to
make sure is accurately represented from a home
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equity perspective, and some of this
may not be home equity specific, right,
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because it may be about residential real
estate, whether it's mortgage or home
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equity. Can we kind of get
lumped into just the broader you know,
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real estate lending use case, But
that's really in a part of how do
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we use CBA, How does how
didn's forty one banks ultimately kind of represent
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their institutions as well as all institutions
to be able to then help influence if
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there's something coming on the policy side. Gotcha, are there any major changes
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that you guys are are specifically we're
not on what no, right, So
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obviously there's a lot of other things
happening at the Bureau and on the and
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on the hill and not gonna win
at this point. We haven't had anything
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that's that's coming that that that is
you know, on the foreseeable future.
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Gotcha, Yeah, I hope,
queen. I think a pretty stable,
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like reputable product. I know we've
also talked about other maybe like unsecure or
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small dollar lending that you've got some
experience in. Maybe share some of the
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compare and contrast some of those products
in your experience, how the consumers are
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using them, how they're viewed from
a regulation. Yeah, well, the
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day is done, right. I
think we tend to spend a lot of
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time, like we talk a lot
about products, and we also need to
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take a step back and think,
I mean, the consumer needs access to
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money to be able to buy goods
and services, and how do we think
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about those underlying reasons why they need
money first and less about products initially,
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And so unsecured is a great exailple
right. If a consumer needs access to
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thirty thousand dollars, may able to
do some work on their house, which
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is a pretty typical home equity use
case. Those are squarely in the sweet
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spot for some traditional unsecured loans.
And so we spent a lot of time.
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One of our sessions yesterday actually was
kind of this debate and discussion about
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unsecured versus home equity, Where does
it begin? Where does it end?
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Obviously, you always want to be
thinking about what is in the best interests
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of the consumer first, and it's
not just always about price. It's about
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convenience and simplicity and cost and all
that stuff. And each product has different
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pros and cons and so we definitely
spend a lot of time thinking, Okay,
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I mean, all the institutions,
how does you know a larger dollar
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amount, a longer term, a
monthly payment, interest rate all factor into
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that solution that makes the most sense
for the consumer. But for the industry,
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you know, home equity and unsecured
have done kind of competitors at times
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and kind of compliments at times.
So I think there's this there is a
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balance there. But certainly, you
know, we know that unsecured is,
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in particular in some of the point
of sale situations, are very much used
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as an alternative home improvement. Yeah. I like that anchoring back, like
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we started with, you know,
what is the consumer need that we're trying
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to solve, which can be sometimes
hard, especially as any organization is going
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to be broken up organized around products. Right, You're trying to develop something
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specific to bring to market anything the
committee is seeing or are people talking about
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innovations in you know, how they
structure organizations develop products to you know,
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make it simpler for the consumer to
say here's the need I have versus you
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know, someone going in like you
might go into a traditional retail store and
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say, here's the product I'm looking
for off the shelf. Yeah. I
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don't know if there's anything innovation innovative
necessarily, but I think there's much more
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of a mindset of connect acting with
your stakeholders within the organization if you don't
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have unsecured, like how our home
equity people connect you with unsecured. And
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what's interesting about the committee is,
you know, we have people that represent
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home equity and mortgage, and we
have people that represent home equity and unsecured,
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and so like you get very different. Like some people are like,
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well, I'm thinking about it through
the lens of kind of that use case
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through home equity and unsecured, and
others are like, well, I'm thinking
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about the kind of residents real estate, and I need to be very intentional
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to talk to my unsecured colleagues,
whether that's in you know, kind of
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unsecure versual home. We also can't
lose out of credit cards, right obviously
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credit cards or right, you know, it can be an enabler for a
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consumer to make a eight to ten
thousand dollars purchase with a really relatively low
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interest rate. So there isn't necessarily
anything innovative in tech that we've talked about,
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but I definitely hear more from my
colleagues about how they're proactively reaching out.
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And also then you know, how
are risk people talking? Right,
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So what is our risk poblicies for
unsecured versus home equity? And where is
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there the larties and where are the
differences? So it all is kind of
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just I'll go back to collaboration,
right, Yeah, and that collaboration and
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coordination at the committee level in addition
to and individual institutions. Yeah, and
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I can imagine that could be really
hard, especially in the financial services industry.
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You'd like a clear answer, like
you can't really ab test like if
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they give this person a personal loan
versus a whole equity loan, Like how
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are they going to perform? What's
their long term relationship? That is?
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That would be an idel state.
You got to have a little bit more
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time, you know, and you
could do some creative things around potential some
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of your marketing pages on your website
or things like that. But ultimately,
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yeah, I mean, the data
is done. They need to take a
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PRODUCTY or a product B. Yeah, and then go down a particular path.
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And another theme I'm seeing this week, and it could be my own
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bias for the things I'm looking for, is just around artificial intelligence again,
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the ability to make things more automated, the ability to help serve the consumer,
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get them their questions and needs answered
faster. How are you seeing that
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come through in the whole equity space. Yeah, I think I think come
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equity is I'm a baseball guy,
right, so I think we're in the
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maybe the top or bottom of the
first inning on our equity side relative to
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potentially other use cases and other products. Partly because you know this is still
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a and I think it's right for
opportunity, but it's so early, because
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you know the process is still quite
manual. How do you then find ways
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to be able to use additional data, additional technologies to be able to automate
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but not then increase your risk or
exposure. Sure, and that's the uncertainty
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that I think a lot of institutions
have is how can I bring that in
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but not then and also then obviously
still continue to comply with all the necessary
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regulations and rules, but not then
always forced the consumer to bring us documents.
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So that's an area that the Committee
has spent a lot of time on
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over the years. Is it is
just where are there opportunities for us collectively
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to simplify and automate? And certainly
there are some new engines that are doing
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that and setting up our height and
that's good, right. I mean,
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I think the the industry needs to
be pushed to be able to say,
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how do we then all step up
to be able to then deliver some of
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the similar experiences that that new entrants
are providing. Yeah, are you saying
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like safer areas to start in?
Is it verification, is it underwriting?
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Is it in the you know,
the user experience. I think it's going
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to be more on the kind of
on the the collection of documentation. Okay,
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as your as your starting point,
Yeah, I think beyond that,
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I think it's it gets a little
bit tricky, and I think less aptitude
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or interest in trying some of those
things initially. Yeah, yeah, interesting,
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What are some other trends that maybe
you're seeing either in in credit quality
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in general or again the interpretation of
that data through the door population. Is
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there any Yeah? You know,
I think the other thing we spent on
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quite a bit of time talking about
the other day and our meeting was just
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overall client engagement through activation. And
so obviously with a with a my cold
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line of credit, right we'll give
a We'll give a home leutner a line
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that they can then use when it's
convenient for them and when they need it.
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And so we were like, what
are we seeing differences in your number
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of consumers that are taking and draw
or using it initially and then long term
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utilization rates as well? And I
think there was definitely that's one that everybody's
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keep watching because obviously, right we
you want to give the consumer access to
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a line of credit demandle to use
over time, but if they don't use
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it, that is, you know, that doesn't add any value to us
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initially. So where is there that
right balance? And so I think we'll
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continue to talk through that just what
are we seeing and what does that look
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like based off of different credit profiles
in different geographic areas and things like that.
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It's like, is there anything any
you know, core trend that's happening.
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But that's one that I think we
all are watching because you you definitely
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are starting to see it and we
are starting to see some improvement in utilization
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rates, which then speaks to consumer
demand and the interest in using those that
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open credit to then make these purchases. Okay, is there a lot of
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interaction with other committees or how I
think about the CBA is a whole.
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Yeah, that's definitely an area.
So each of us kind of establish some
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targets and some abjectors for the year, and that's one that we are being
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much more mindful of. The one
the two that we're connecting with is fraud
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and then CRA because those are areas
that are you know, fraud is just
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an area that we all need to
be mindfuluff. It's real and and so
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what is what is the Fraud committee
seen and how can then you know,
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we kind of work together with them
and just begin all in the spirit of
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joint learning and joint sharing of information. And then the same thing on CIRA,
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right, I mean, obviously home
equity can be used as a way
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to facilitate cra lending and what are
they seeing, how does that work?
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New rules, all that stuff.
So definitely an area we want to be
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spending a little bit more time on. Yeah, fraud I imagine is one
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that is pretty safe where everyone wants
to make that as minimal as possible.
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So any insight you can share people
are probably yeah. And this storically fraud
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on home equity lines of credit hasn't
been a big area for us, you
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know. Now I think every institution
is starting to realize both on the new
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account of origination side as well as
then the existing customer when they have that
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one hundred thousand dollars line of credit
that's sitting out there, what are the
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tactics one of the things being done
to minimize any potential fraud losses through account
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takeover things like that. So again, in few years ago, was it
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a hot time scenario that we wanted
to spending more time. Interesting so that
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you mentioned the committee. Obviously a
great way to continue to learn are the
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things I mean selfishly for me,
I'm trying to put together a network of
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things to learn from as well,
Like are there thought leaders, publications,
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things that you follow externally to kind
of keep up to date on everything going
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on. Yeah, that's a good
question. So you know, we all
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are looking at different forms of data
at different ports and all that stuff.
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You know. The one that I
spent a lot of time on is the
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New York FEDDOS setting on household debt
every quarter. It's interesting, right because
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it actually gives kind of a complete
picture of all that It's not just about
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home equity. It's about what's happening
with mortgage balances, credit card balance is
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autohole equity and so and then they
go a little bit deeper then into some
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credit profiles and some different transponencies and
things like that. And so that to
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me is you know, we because
when the day is done right, the
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home equity is a part of the
consumers that want we'll call it right and
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and and how does this fit in
with what's happening kind of in the bigger
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picture. So that's when we spent
a lot of time on. And then
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you know, there's there's a variety
of things that come through, you know,
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like through Black Night and Cure and
os it other kind of industry groups
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that are then providing information about what's
happening in the market, what's happening kind
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of in the individual segments that all
of us absorbing used to help kind of
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define what's happening. Okay, great, well, I guess you know.
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The last opportunity for you is anything
you want to plug or if folks wanted
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to get involved in the CBA or
on a committee, what's the path for
379
00:24:49.119 --> 00:24:51.839
them to do that? Yeah,
certainly right. I mean, I think
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if anybody's interested in learning more about
what we do, they can reach out
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to me. We've got our CBA
context as well that we can then put
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them in contact with. But it's
a great group of people. It allows
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us, like I said, to
interact and share and learn and hopefully when
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the day is done kind of all
raise the bar for everybody. Awesome.
385
00:25:07.759 --> 00:25:08.640
Yeah, well, I appreciate the
time, Mike. It was great to
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00:25:08.880 --> 00:25:11.000
me again, and I enjoy the
rest of the shows. And that's good.
387
00:25:11.000 --> 00:25:15.039
Thanks. Thanks. Upstart partners with
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388
00:25:15.119 --> 00:25:21.240
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