MISMO, the real estate finance industry’s standards organization and a subsidiary of the Mortgage Bankers Association, plans to launch a working group that will create standards for Electronic Home Equity Lines of Credit (eHELOC).
The launch of the working group comes at a time when HELOCs are an increasingly popular choice for homeowners who want to tap into their home’s rising equity while protecting their existing low mortgage rates.
Given that HELOC organizations are more streamlined than closed-end lending, there is greater importance for the adoption of electronic closing documents, MISMO said last week, calling for participants to join a new development workgroup (DWG).
“The new eHELOC DWG will collaborate with industry participants, government agencies, and other stakeholders to complete the analysis to determine eHELOC standard feasibility and prepare a roadmap of artifacts that would be needed to standardize this across the Digital Mortgage ecosystem,” David Coleman, president of MISMO, said in a statement.
The working group will consider high inflation and elevated rates in the development of the product, MISMO said. Meetings will be conducted regularly via conference call.
Unlike closed-end eNotes, which have limitations on the substance of the note, eHELOCs are not “negotiable instruments,” so they contain more, and greater variation of, substantive terms, according to MISMO.
Standardizing these electronic closing documents, as a result, would allow for increased interoperability of HELOCs – easing the onboarding process as the assets are sold or transferred between parties.
While HELOCs continue to set the stage as flexible products that provide quick access to financing for a multitude of uses, including home renovations, debt consolidations or emergency purchases, severe contraction across the lending industry in the fourth quarter of 2022 affected HELOCs in terms of origination volume.
The volume of HELOC loans declined by 17% to $60.1 billion in the fourth quarter of 2022 from the previous quarter’s $72.3 billion, ATTOM, a real estate data provider, reported. However, fourth-quarter origination volume was still up by 27.4% from $47.2 billion in Q4 2021.
Overall, HELOCS accounted for 20.7% of all loans in the fourth quarter of 2022, nearly five times the 4.6% level from the first quarter of 2021, ATTOM reported.
Depository banks have dominated home equity lending for years, but nonbank lenders seeking volume are increasingly targeting HELOCs. Among the nonbanks that either have or plan to introduce HELOC loan products are United Wholesale Mortgage, Rocket Mortgage, Guaranteed Rate, loanDepot and New Residential Investment Corp. (rebranded as Rithm Capital).
