How Traditional Lending Standards Are Leaving Homeowners Behind
Recent data from the St. Louis Federal Reserve shows that U.S. homeowners collectively hold roughly $30 trillion in home equity. At the same time, research from MeridianLink highlights homeowners’ growing interest in tapping their home equity to combat increasing financial pressures. (Read more about that here.) However, despite the massive amount of untapped equity and rising homeowner interest in accessing it, doing so is becoming increasingly difficult.
In early May, the Federal Reserve held interest rates steady, contributing to an already tightening lending environment. High interest rates, stricter lending standards, and economic uncertainty have created a challenging climate for homeowners seeking to unlock their home’s value. Traditional options, like home equity loans and home equity lines of credit (HELOCs), often have high barriers to entry, including stringent credit score requirements and detailed income and employment verifications. According to research from Point, denial rates for HELOCs are a staggering 46%. If homeowners do eventually qualify for a loan or HELOC, they both come with significant drawbacks, such as increasing homeowners’ debt-to-income ratio (DTI), requiring monthly payments and interest rates, and using the home as collateral.
For many homeowners, these obstacles make it difficult to access the wealth they have built and have the right to access. Traditional lending, as new products come onto the market, may no longer be desirable, especially in today’s high-risk environment. JP Kelly, Senior Vice President of Mortgage at MeridianLink opined that this difficult situation allows “an opportunity for financial institutions to bridge the gap by simplifying the lending application process, improving education on home equity products, and offering more competitive, flexible options.” Addressing these needs, shared equity products (SEPs) offer an alternative way to tap into home equity, without taking on debt.
An Innovative and Flexible Alternative
SEPs are a new form of home financing based on equity rather than debt. Instead of borrowing against their home, homeowners receive a lump sum of cash in exchange for a portion of their home’s future value. SEPs have no interest rates, no monthly payments, and no absolute obligation to repay the investment amount. Though specific procedures may vary slightly between individual members of the Coalition for Home Equity Partnership (CHEP), the overall process – submitting an application, completing a home appraisal, and receiving funds – remains transparent and far less burdensome than traditional lending.
CHEP members do not rely on conventional credit or income verification, making SEPs far more accessible to a wider range of homeowners, including consumers with less-than-perfect credit, small business owners, retirees, and those with irregular or non-traditional income. Additionally, since repayment is typically triggered by a future event, such as selling or refinancing, SEPs provide immediate liquidity without increasing a homeowner’s DTI or straining their monthly budget.
In a financial landscape where traditional lending is becoming more restrictive and expensive, SEPs offer a smarter, more flexible path to unlocking home equity. SEPs empower homeowners to access the equity they have earned by eliminating monthly payments, loosening credit barriers, and preserving financial stability. In short, SEPs are financial solutions built for today’s homeowner.
For more information, read our FAQ guide or contact info@homeequitypartnership.org.