A Relationship In Which Break-Up Was Planned

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Credit Union: Merck, Sharp & Dohme FCU

Nominated By: GMAC Mortgage

Nominated For: Mortgage Lending

Business partnerships sometimes end up in a parting of the ways, but few plan for it. For Merck, Sharp & Dohme Federal Credit Union, West Point, Pa., separation from GMAC Mortgage was planned almost from the beginning, says David Whitehead, Merck's chief executive officer.

GMAC Mortgage provides mortgage loans to members of the $248-million credit union. The mortgage sales and servicing arm of General Motors Acceptance Corp. even maintains a presence in the credit union's office one to two days per week depending on loan volume.

But what started as a marriage of convenience could end in divorce as early as next year, says Whitehead, who's quite sure that divorce will be amicable.

The relationship first had been forged in the early 1990s when Merck lacked the on-staff expertise to offer mortgage loans. That relationship ran for about five years, then faded away until 1997, when Whitehead joined the credit union.

"We'd worked with GMAC Mortgage earlier and stopped," said Whitehead. "I wanted to strengthen our loan program and start again."

Whitehead still lacked the on-staff expertise but wanted to remain competitive in the local market. GMAC offered a cost-effective and risk-free way to provide the service in hopes of binding members more closely to the credit union, Whitehead said.

Right now, GMAC supplies the credit union with two trained loan personnel for up to two days per week. The loan program generates $60 million per year or about $5 million per month. GMAC earns a percent of each mortgage generated and then sells the paper to the secondary market. The company retains the servicing rights, however, so members rarely know their loan has been sold, says Whitehead.

The credit union does not extract a fee for allowing GMAC to mine its members, said Whitehead. "RESPA requirements say we can't earn anything unless we do some work and GMAC is doing all the work," says Whitehead.

The credit union does assist in promotion and marketing when the loan officers will be present. The credit union earns $50,000 per year for that service, Whitehead says.

"We want to be a full-service provider to our members and GMAC allows us to do so," says Whitehead.

The credit union executive appreciated GMAC even more during the last two years, when low rates would have made it impossible for the credit union to offer mortgages. "I would not have been able to make up the spread between what I earned on loans and what I offered on savings," says Whitehead.

The symbiotic relationship that has been beneficial to both parties soon may end, however.

"I'd like to do the mortgages myself and sell them to the secondary market," Whitehead says. "I think there's a lot of lost opportunity here."

GMAC has been very accommodating to the credit union's change in direction. "They've offered to teach us whatever we need to know to do this ourselves.

"I think that's an indication of just how successful this relationship has been," says Whitehead.

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