SCHAUMBERG, Ill. — Rising home values, increasing consumer confidence in their own financial situations and falling delinquencies all point to the possibility more credit unions will ease mortgage lending standards, say analysts and CU executives.
As CU Journal reported previously (As Mortgage Demand Declines, Some CUs Lower Lending Standards, June 6) Experian data shows that credit unions over the past year have increased their attention on near prime borrowers. Here are five takes on this trend:
1. Already-Tight Standards Could Use Some Loosening.
What lies ahead will certainly vary by lender and the needs of the membership, but Experian contends that overall it is time to ease standards that became overly tight during the financial crisis.
Falling delinquencies not only give FIs more confidence to adjust their standards, but also reasons, said Alan Ikemura, Experian product manager. "Over and over we have stated that delinquencies continue their downward trend, a very good sign for lenders."
Ikemura thinks it may be a better sign for credit unions since they have closer ties with their members than banks have with customers. "CUs have stronger relationships so they typically see better than average delinquency performance, and that just leads to their willingness to loosen credit a bit."
Ikemura said credit unions and banks will do much more with HELOCs as consumers feel more confident to tap their home's equity, which is rising again. "But we don't see people now using their home as an ATM. They are using their equity more responsibly."
2. Rising Equity and Member Confidence.
Members are showing a growing interest in HELOCs at the $23 million WSSC FCU in Laurel, Md., according to CEO Jeffrey Goff, who said borrowers are more confident in their financial positions and willing to leverage their home's equity to fund home improvements or pay off debt.
"Our credit union already has policies in place to reach our lower-credit-score members," said Goff. "We just recently changed to an 80% combined loan-to-value threshold for our HELOCs, so we did some tightening up in that area. However, we are willing to lend to members whose Beacon scores are as low as 500, with higher standards in regards to debt-to-income requirements. We already have a product to help those who have suffered through the recession."
Goff said the goal is to always to offer a product and approve a loan when it makes the most sense for the long-term financial well-being of the member, not simply for the sake of growing the portfolio.
"Our home equity line of credit rates start at 3.25% APR (variable), which is very competitive in our market," said Goff. "Since we risk-price our HELOCs, we price our E borrowers higher, but at a rate that is significantly lower than what the member would pay elsewhere."
3. Adjust Standards and Focus On Gen Y.
Bill Handel, VP of research at Raddon Financial Group, Lombard, Ill., also sees the need to slightly adjust lending standards that have become too tight following the recession — and a big opportunity with Gen Y.
"The key will be innovation: Can I write an instrument that may not meet all the QM standards — meaning I can't get 20% down from many Gen Yers — but one that will protect me? Maybe do some creative things with that first-time homebuyer."
The mortgage opportunity with Gen Y is not a "2014 issue, but one that is a next-five-years issue," noted Handel. "The number of Gen Y moving into home ownership in the next five years is significant. I know everyone talks about Gen Y's huge student loan debt, but the reality is you buy your first home when you are 30 or 31, and Gen Y is moving to that point."
4. Stick to Your Knitting.
Bill Vogeney, EVP/CLO at the $3.8 billion Ent FCU in Colorado Springs, Colo., says his CU has no plans to adjust its mortgage underwriting.
"If the employment numbers keep getting better that should help the mortgage market," said the CUNA Lending Council chair. "But we should learn from the sins of the past and stick to our knitting — sound underwriting and what we know. And when we make exceptions, they truly are exceptions to a member we know well."
5. Educating Members to Improve FICOs.
Michael Pardon, CEO of Sea Air FCU in Seal Beach, Calif., said the $147 million CU has not lowered its credit score guidelines on the mortgage side.
"The focus has been on educating members about their score and trying to help them make improvements to their score," he said. "We may consider adjustments after we assess the impact of the new mortgage regulations."
