Borrowers often turn to HELOC loans to access a revolving credit line, whether it’s for home renovations, debt consolidation, or something else. But this popular method of borrowing against home equity is often fraught with compliance paperwork for lenders. This slows down time to funding and wastes everyone’s valuable time. Here, we’ll discuss how capabilities such as eForms and eSignatures can be brought into an automated digital workflow to streamline the HELOC application process.
The Peril of Clumsy HELOC Application Processes
Let’s face it: lenders and regulators have learned from the housing crisis of 2008, and it’s no longer easy for consumers to qualify for HELOC. Usually, banks will want to see a credit score of at least 700, and total debt that amounts to 43% or less of total income. In addition, the HELOC loan and mortgage balance typically can’t exceed 80% of the home’s value.
A lot of paperwork is required during the HELOC process to ensure KYC and compliance with HELOC requirements. Due to the long list of requirements, it’s very common for loan officers to end up chasing consumers for missing or incorrect documents. Forms often get returned with errors, requiring resubmission which wastes time and resources. The customer and agent experience is also damaged by choppy journeys that require multiple channels and conversations.
Here is a sample of what a financial institution may require. Given the many requirements, it’s more likely than not that something will go wrong in a typical process.
Proof of Income
- Current paystub dated no earlier than 30 days prior to the initial loan application date and including all year-to-date earnings
- Last two years’ W-2 Forms
Self-Employed, Receive Commission Income or Own Investment Real Estate
- Last two years’ signed Personal Federal tax returns including all schedules
- Current year-to-date Profit & Loss Statement
Disability, Social Security, or Pension Income
One of the following:
- Most recent award letter showing amount of income received, OR
- Two most current bank statements showing amount and source of income, OR
- 1099s from the last two years
IRA or 401k Distributions
One of the following:
- Letters from the organization providing the income, OR
- Current retirement award letters, OR
- Most recent year signed Personal Federal tax returns, OR
- Most recent year W-2 or 1099 Forms, OR
- Two most current bank statements showing amount and source of income
Alimony or Child Support
- Date of birth of any children
- Copy of Divorce Decree
- Documentation of no less than six months of the borrower’s most recent regular receipt of the full payment
- Current photo ID
- Copy of your homeowner insurance current declarations page
- Copy of most recent tax bills and homeowner insurance current declarations page for other properties owned
- If the property to be secured by the mortgage is in a flood zone: Copy of flood insurance policy showing policy term, amount of coverage and premium.
The Solution: An Automated Digital Workflow
Instead of chasing customers for documents, and piecing together all the parts, lenders can bring all the HELOC requirements together into a single automated workflow. From ID verification to document collection to eForm uptake, every customer-facing part of the HELOC process can be streamlined with Lightico.
Banks need to accurately gauge their customers’ risk levels when they seek a loan. With Lightico, it’s easy and simplified. An agent (or a self-service portal) simply send the consumer a text message containing a link to a secure session. Once inside, the consumer can upload all the required supporting documents simply by taking a picture with their mobile phone.
The application iself can be turned into a mobile-optimized eForm, also to be completed within the same real-time session. Conditional logic can be embedded, allowing fields to be shown or hidden based on business rules.
eSignatures can be provided and/or terms and conditions accepted fully digitally — no wet signatures or agent compliance scripts required.
Finally, photo ID can be submitted and automatically validated by an AI-powered tool, allowing banks to meet compliance requirements with remote consumers.
Here is a sample workflow:
- Workflow generates relevant loan application forms with any known information prepopulated. The consumer fills out the rest.
- Depending on the conditional information received, the workflow triggers a request for additional documents such as proof of income and tax return documents.
- Customer digitally sends additional documents, photo ID for verification, T&C acceptance, and eSignatures.
- The entire loan application is received by the lender, and safely stored in the agent CRM.
Throughout the entire automated workflow for HELOC, conditional logic can be employed to ensure a personalized, efficient experience.
Here are some examples of conditional logic triggers banks may want to use for HELOC:
- If: credit score is below 700, then prevent consumer from continuing the process
- If: risk profile is high, then ask for additional supporting documents
- If: consumer is retired, then ask for retirement award letters
- If: consumer is divorced with children, then ask for receipt of alimony
The Bottom Line: Simplified HELOC is Possible
The HELOC process can be cumbersome and time-consuming. It often takes up lenders’ resources and strains consumers’ patience. With Lightico’s automated workflow and digital capabilities, HELOC applications are easy to collect from a single digital channel. To learn more about Lightico’s eSignature, eForm, document collection, and ID verification capabilities, visit Lightico.com.