SAN DIEGO - To borrow a metaphor from baseball, the ongoing real estate crisis is “somewhere in the middle innings,” and it might be 2009 before home prices go back up, according to one analyst’s play by play.
In the meantime, warns Bill Dallas, credit unions must change to take advantage of a mortgage market he calls the “biggest opportunity in the history of credit unions.” (Learn how credit unions are trying to leverage that opportunity in this week’s special report, page 1).
“The credit crunch has led to risk aversion, not just in mortgages but in all lending,” said Dallas, the chairman of Westlake Village, Calif.-based Dallas Capital Management. “One big problem is underwriting standards were written in the 1950s for Ozzie and Harriet. How do we qualify people while we are waiting for prices to recover?”
Witnessing Historic Confluence
Dallas told the audience at WesCorp’s recent Future Forum conference here the financial world is witnessing a historic confluence–interest rates are going down, yet so are mortgage originations, which he said typically rise when rates decrease. As a result, he said, home equity lines of credit might be the best product, both for originators and borrowers.
“Credit unions have not been hurt much at all by the mortgage crunch, largely because of their strict underwriting standards,” he declared. “But in a market where it will take one year just to work through housing inventory, credit unions must change to take advantage of an opportunity.”
Cedit unions currently hold between 2% and 3% of the U.S. mortgage market. While that share is growing, Dallas questioned if the oft-cited industry target of a 10% share by 2010 is realistic. He referred to it as a BHAG, or Big Hairy Audacious Goal.
“Credit unions’ market share is not growing because they don’t have the boots on the street,” he advised. “Credit unions are not talking with Realtors to establish relationships; they are not cold-calling members to talk with them about mortgages.”
Dallas identified four areas of opportunity for CUs: one, increase portfolio lending; two, build a direct origination business; three, sell mortgages to the secondary market while retaining servicing; and, four, improve lead generation and member retention.
“The secondary market wants direct-retail loans,” he observed. “If credit unions sell to the secondary market and retain the servicing, it helps retain the member.”
Most consumers today feel they have no relationship with any company or financial institution, Dallas continued. “They have a loan here and a loan there, but they want a relationship.”
A credit union’s advantage in this market, he said, is the trust of its members that should be leveraged into a deeper relationship.
“Credit unions have a reputation almost above reproach. Members want car loans, HELOCs, credit cards and debit cards. Members have life events, and many of those lead to borrowing–such as a first car, getting married, starting a family, starting a business or sending a child to college.
“Credit unions are the one financial institution that can have a relationship with its members,” he added. “Know and keep that member for life, and own 100% of the wallet.”
