LAS VEGAS-The recent record decline in mortgage rates is doubling, even tripling mortgage refinance business at some credit unions. But the boon is also bringing with it the temptation to keep loans on the books to drive ROA, in addition to issues with loan processing time.
The new regs and lengthier appraisals are taking longer to close loans, prompting loan departments to seek additional resources, several sources told Credit Union Journal. Most credit unions say they are absorbing the expense and not passing costs onto members, and are pricing loans with the market at press time, near 4.25% for a 30-year fixed with no points. Bob Dorsa, CEO of the American CU Mortgage Association, said that appraisers, as well, have become very cautious and slower in turnaround. "Some of the appraisals that are being submitted are very inconsistent. That's really taking its toll on the length of time it takes to complete a loan."
The other issue, Dorsa reminded, is asset-liability mix. "How much long-term 4% to 4.25% debt do you want to put in the portfolio?" But selling off the long-term, fixed-rate loans, which most credit unions appear to be doing, will not improve loan-to-share ratios that are already suffering, added Dorsa. "Then what do you do with the liquidity? Not a whole lot of places to put that money to make it work for members. It's a Catch 22 that's making CEOs scratch their heads."
Linda Clampitt, SVP of the Dallas-based CU Members Mortgage, said business that is flowing through her organization indicates that CUs are holding onto fewer long-term loans. "Typically, when rates are not so low, 15% to 20% of our business is credit union portfolio lending. As interest rates have come down over the last year we have seen that drop to below 10%."
Refinance volume is there for the taking, agreed several analysts, who added some CUs are reporting they have to do little more than open the door and the business comes in. And for those that are aggressive with advertising and working with real estate agents, volume can be very high, Clampitt explained. "We know of one credit union in Texas that did an excellent job reaching out to the community and their mortgage loan volume is up over 300%."
The $3.5-billion Delta Community CU in Atlanta has seen refi volume jump 200%, reported Jason Osterhage, chief lending officer. "We received 400 apps in both August and June, about 200 a month more than we saw in June and July."
DCCU is holding onto its 10-, 15-, and 20-year mortgage loans, as well as its ARMs, and is selling 30-year fixed loans. "We look at the interest rate risk of the 30-year and we think there is quite a bit there," Osterhage said. "We think there is less in the 15- to 20-year, in part because of the amortization curve over time-there are fewer dollars of balance at risk."
Even special pricing is not getting members to bite on ARMs these days and help the CU keep more mortgage loans on the books, according to Vicki Lovett, SVP lending and chief lending officer at the $5-billion Suncoast Schools FCU in Tampa, Fla. The credit union portfolios its adjustable rate loans and sells most of its fixed, and has been offering to cover up to $2,500 on closing costs on its ARMs. "But even that deal is not steering many members and consumers to ARMs," she said. "They generally want the security of a fixed rate."
