The all-in-one product that could change the industry
With a near-record amount of equity available for homeowners to tap into, combined with record consumer debt, home equity lines of credit (HELOCs) have seen a resurgence over the last couple of years.
One of the main reasons for this resurgence is because so many borrowers bought a home or refinanced an existing mortgage during the immediate aftermath of the COVID-19 pandemic. Mortgage rates between 2% and 3% caused buyers and homeowners to flood brokers’ offices nationwide.
While mortgage rates have come down from last year’s highs in the upper 7s to near 8%, they still might not be low enough for a homeowner to want to refinance out of a 2% mortgage. So they turn to HELOCs to tap into the equity.
That is the conventional use case for a home equity line of credit. One broker is looking to turn the thinking about HELOCs upside down.
Matt Stahl (pictured top), principal mortgage advisor with Edge Home Finance, has embraced a new way to look at a HELOC that he hopes will not only change the mortgage industry, but also give financial freedom to homeowners that simply isn’t available in the old system.
“Most people think of HELOCs as a second position,” Stahl told Mortgage Professional America. “I need access to my home equity, and I don't want to touch my first mortgage. I don't think of HELOCs that way. A first-position HELOC, which is what I specialize in, unlocks the ability for borrowers to power a brand new system for their money.”
A different kind of HELOC
A first-lien, 30-year HELOC is a different type of loan than most brokers and loan originators have encountered when thinking about home equity lines of credit. Stahl said he believes it’s a modern product in an industry that often is stuck in the past.
“The system that runs our money every day was designed a very long time ago in the 40s and 50s,” Stahl said. “That system of money was designed more around monthly payment thinking and long-term predictability for banks. That system, I believe, is breaking, and we see that when rates climb. When rates climb, people don't have money anymore, and there's a liquidity problem.
“It’s because the different parts of the system of money that we are in don't talk to each other. There's no communication. Your debt is living in a different zip code than your checking account deposits every day. It’s because of that system design that people don't feel like they have any money. They don't feel like they are getting ahead anymore.”
Stahl said that taking out a 30-year, first-lien HELOC allows the borrower to tap into the stored home equity, which allows them to not feel like they’re living from check to check.
“What a first-position HELOC allows you to do is change that system of money and allow your home's stored wealth to power the next 30 years,” Stahl said. “Now your income can talk to your debt at the same time. You’re allowing the natural rhythm of your life, which is paychecks coming in, and you're spending on whatever. The new system runs that process every day way more efficiently.”
He said what was eye-opening, not just for him but for his customers, was seeing someone making good money but not getting ahead.
“When I just started running it by people that I know in my life, who have good incomes, they're going to work, they're raising families, they respect money, they make good money decisions,” he said. “They're not blowing their money in Vegas every weekend. The results were insane. In most of my simulations, the average time to zero out their entire mortgage debt would be around six years instead of 30.”
Looking to expand awareness
The concept of this type of HELOC will take some time to gain more widespread adoption across the mortgage industry. In the future, Stahl hopes his new startup, Life By Design Mortgage, will be able to allow loan officers to use this system to help their customers.
In addition to reaching out to him with questions, he suggests a couple of places where brokers can start learning about this product.
“I always tell people to start with either CMG Financial’s All In One Loan, or The Loan Store’s Wealth Builder, which was just released,” Stahl said. “It's the exact same product, apples to apples to All in One. The All in One Loan has a certification process that they want all loan officers to go through, and they teach you. It's self-paced, and they teach you the product their way.
“The Wealth Builder through the Loan Store has a webinar series that they are doing right now. You can get access to information, and they each have their own simulator. The simulator is where loan officers need to spend their time, because that is what will allow them to see and feel how this thing works.”
Stahl is hoping that by spreading the word about this new type of loan, brokers will be able to use it to help change the lives of their customers. Like so many new concepts in the mortgage industry, Stahl said it starts with education.
“You have to start the conversation by teaching people about the system of money that they live in, that they were born into,” he said. “It's actually not their fault that they get up and have to go to work and don't feel like their money is going very far. The biggest thing is education to allow them to see that the system they're living in right now is risk.
“A first-position HELOC is the opposite of risk, because it is all liquidity. So, just helping people understand is the biggest challenge. I want to get the whole world to catch on, the loan officers, homeowners, all of them.”
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This article is part of our Monthly Spotlight series, which in February focuses on HELOCs. Full coverage can be found here.
