Home Equity Loan Pricing: Case Studies

Measurement & Management

Problem: The client had undifferentiated home equity pricing and was looking to improve total revenue without making significant investment in new footprint.

Solution: Novantas conducted a review of risk measures and performance metrics. From there, we developed a number of tools to measure and manage pricing, including a risk-adjusted hurdle rate, risk-based pricing “floors,” and an elasticity model that established customer elasticity responses relative to competitive market prices. This information was used to establish target prices for each cell to optimize total revenue and return across the portfolio. Finally, we developed an approach to operational execution of the pricing grid; supported the client in pilot phase and through the roll-out phase.

Result: This established new tools and capabilities for ongoing management of competitive pricing. In addition, client realized significant gain in overall portfolio revenue and risk-adjusted profitability through increased volume, improved spread revenue and improved customer pull-through.