There’s bad news on the horizon for many homeowners who currently have home equity loans. According to a recent article in the New York Times, when these home equity lines of credit (HELOC) reach their 10-year anniversaries, they are resetting. The reset causes the borrower to reach even deeper into his wallet and not only pay interest on the loan, but also pay on the principal. Borrowers might see their monthly payments triple because of this reset – which is especially daunting for individuals and families who are in subprime loans.
Banks also have the potential to feel the pinch from this situation. With more than $221 billion in loans reaching the 10-year mark in the next 4 years, making up around 40% of outstanding HELOCs, the potentially negative impact on the finance industry is evident. According to Equifax, the amount of borrowers who will miss payments as their loans enter into their 11th year can double, leaving banks in a staggering deficit of up to 90 cents on the dollar. In addition, if the property is foreclosed, the sale proceeds go to pay the principal of the original mortgage, leaving little to no revenue to the home equity loan lienholder.
Many banks have taken a proactive approach in contacting their customers – some in more than a year before they will be faced with the payment hike – to not only make sure they are aware of the increase but also to give them options for refinancing or modifying their existing loans. These notifications are just part of a strong customer communications strategy. This strategy is only effective if the data is present to show which borrowers are affected by the reset and have the proper infrastructure in place to be able to reach out to these customers via their preferred medium.
Staying connected to customers is key to enhancing the overall customer servicing experience. CEDAR’s unified customer communication management platform provides banks with all of the tools necessary to implement not only campaigns like the HELOC notifications but every contact point from onboarding to billing – and everything in between.