Analyst Has Tips For Increasing Firsts, Home Equities

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Credit unions seeking more income need to look to mortgage and home equity loans, according to one analyst.

Bob Lawhead, president and CEO of Oakbrook Terrace, Ill.-based consultancy Raddon Financial Group, told attendees of the recent American Credit Union Mortgage Association (ACUMA) conference here that 66% of CU members are in the three consumer segments most likely to buy a house or obtain an equity product.

These segments, defined by Raddon Financial Group based on a combination of age and household income, are labeled "credit driven," "middle market" and "upscale." The credit driven members are 18 to 34 years old, have income of $30,000 and up, and are "spenders, not savers," Lawhead said. The majority of CU members fall in the middle market segment: ages 35 to 54, with income of $30,000 to $99,999. Many credit unions say they want the upscale segment (age 35 and up, with income over $100,000), until they find they are a "tough group" to please, he said.

Thirty-two percent of CU members are in the middle market segment, 18% are upscale and 16% are credit driven, according to RFG research.

"Credit unions should think about who their target is," Lawhead said. "The credit-driven segment represents the younger households credit unions want, and 15% intend to purchase a home in the next year. Including refi's, 23% anticipate opening a mortgage in the next year. Many people think the mortgage market is going to suffer for awhile, but we sure don't see it from consumers."

Currently, mortgage companies are beating CUs for these three segments. Lawhead said this is because the mortgage companies are more "focused."

"Credit unions have to sell more products. It is not just a good idea, they have to," he emphasized. "I wish credit unions would be more focused."

Tips For Boosting Volume

There are several ways CUs can increase the number of mortgage and equity loans they write, Lawhead said. For starters, they shouldn't wait six months after someone becomes a member to attempt to sell him or her a loan.

"Credit unions need to sell quicker. They are losing out on a lot of loans; missing out where they should dominate."

CUs should perform a home ownership analysis of their market area to find where the opportunity is, he said. Then, the credit union can look at member segments and identify profitable possibilities.

Knowing where HELOC money will go might help. According to RFG, the middle market segment and upscale segments tend to use home equity loans most frequently for home improvement projects. However, many middle market households list debt consolidation as a close second; while few upscale households have that need. The key, Lawhead counseled, is to not treat all HELOCs the same.

Branch expansion is another key component in building real estate lending business. Lawhead said research shows 75% of people choose their primary financial institution because a branch is close to home or work.

"With single-sponsor credit unions, it used to be simple: put the branch next to where the members work. With more and more credit unions reaching out to the community, it is harder to do so."

The location issue becomes important when one examines the result of a recent branch convenience study RFG performed: 70% of high-performing banks were rated "high convenience" by consumers.

"We did not know this going in, and it's a good thing I work on the other side, too," Raddon said. "Looking at the difference, it is clear credit unions have to get more convenient. Branch convenience drives checking penetration, and it matters when selling real estate."

"As more credit unions move to the community, they have to get into the community. This means they must spend money on branches," he declared.

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