Analyst Describes How Banks Are Using Mortgages To Grab Other Biz
For those CUs that have been hesitant to invest money into mortgage technology, one expert has a simple warning: banks and other competitors not only are spending to keep mortgage loans from credit unions, they are using the established relationship to take away other loans that credit unions have typically counted upon.
Craig Focardi, research director for the consumer lending advisory service of the Tower Group, a Needham, Mass.-based financial services industry consultancy, told attendees of the American Credit Union Mortgage Association (ACUMA) conference here "proactive investment in technology is not just another expense -it could improve internal processes, save money and give faster service to members."
"IT [information technology] adds a lot of value for credit unions and their members," he declared. "Having a strong online presence will help a credit union hold on to more members. There is an opportunity cost of lost sales and cost savings from an underinvestment in IT."
Focardi told the audience he has been a CU member for more than two decades, and served on his credit union's board of directors in the 1980s. He noted the three things that keep lenders up at night are interest rates, regulatory compliance and increased competition.
According to Focardi, the interest rate issue is not as bad as some make it out to be. He said the U.S. economy has experienced a "soft landing," as short-term rates have gone up without a significant rise in long-term rates.
"I think the 'froth' in the market is around the margins, not in the core of the market where credit unions are," he said, commenting on one of Federal Reserve Board Chairman Alan Greenspan's choice words to describe the housing market in recent months. "People who have been buying property not to reside in it, but to hold onto for a few years and sell, may face problems. As it becomes harder to qualify for loans, and rates go up, we'll see a lot of that froth go away. Speculative markets are local or regional, not national."
Compliance with regulations adds cost to the lending process, but Focardi said many challenges in this area are being met by technology vendors in sophisticated ways.
Competition is a major concern, he said, because banks are "crossing over."
"They are trying to retain their clients, and they are going after credit unions' auto and home equity borrowers."
Banks are able to dig into prime CU territory thanks to technological advances in recent years that have improved the online banking experience. Gone are the days of clunky, hard-to-navigate web pages consumers were afraid of. In their place are integrated, customized interfaces. Mortgages are treated as one component of the banking relationship, allowing consumers to view all their accounts with a single sign-on.
As a result, Focardi sees more and more integration of online mortgage servicing and online banking, resulting in the "unified customer/member view."
Technology helps in many ways, he continued. Integration of a financial institution's website and call center, along with imaging systems that can scan an entire paper loan file into electronic documents, allow the borrower to have more interaction with a loan officer.
"This can be via the website, phone or e-mail," he said.
Most back office functions can be automated, if CUs are willing to put in the money and time, Focardi said. Those with legacy system constraints need to upgrade their IT systems.
The reward for doing so is immediate and tangible: "The lending process has a wide variety of different activities, and all are ripe for automation. An automated, online application can give people a customized profile with loan products to meet their needs. Loan origination systems have evolved, making integration and workflow flexible and smooth. There is more communication today. Once loan data is collected once, it can be taken out of the loan origination system and used to populate other forms."
Of course, no CU is in a position to take advantage of every innovation-something akin to a hungry kid in a candy store. Focardi said there is: "So much technology, so little time, and no one has the budget to implement all of it."
"The important thing is to align the business strategy to include IT priorities that fit the budget," he advised. "Be realistic regarding feature customization and cost. Make IT happen by finding the right IT people."