PLEASANTON, Calif.-The real estate lending process at $3.6-billion Patelco Credit Union has been "transformed completely" in the last 18 months, according to Vince Salinas, VP-home loans.
Salinas told Credit Union Journal although today's mortgage market is presenting "fantastic opportunities," Patelco's management believes it is important not to lose sight of its "mission."
"We can ensure our future success by focusing on quality as opposed to volume for volume's sake," he said.
The external influences on Patelco's ability to meet its members' home financing needs have been "transformative" over the last several years, Salinas reported, adding the biggest change it has made is stronger income verification.
"Long gone are the days of imputing income from assets or a borrower stating his or her income," he said. "It is not uncommon for us to request tax returns for W-2 wage earners, review IRS transcripts and verify employment twice before a loan is approved."
According to Salinas, Patelco is "fortunate" to have a membership of credit-conscious, financially savvy consumers. He said for the most part, the CU has stayed within its "wheelhouse," so the credit quality of the applicants it is seeing has been very good.
Patelco rarely turns down a member for credit history, he noted. When it is forced to decline, it usually is for an equity issue.
But some problems remain, including getting quality comps, he noted.
"Like anything else, it is relative," he said when asked about the firmness of local real estate values. "Patelco predominately serves members throughout Northern California, so as one would expect, there are pockets and places where values appear to have stabilized and others that we can expect to continue their downward trend."
Quality Control Auditor
Anyone selling mortgages to Fannie Mae and Freddie Mac over the last two years has "seen changes," Salinas observed. He said the two GSEs are stepping up their efforts to ensure originators are selling quality loans.
"Fannie and Freddie want to make sure whatever is represented by the borrower is documented in the files," he explained. "As sellers to Fannie and Freddie, we make sure we don't have buyback risk in case of delinquencies. If there is a delinquency we can count on the fact Fannie and Freddie will do a quality control review and audit at that point, and everything that needed to be in the file had better be there or we would face buyback risk."
As part of this emphasis on making quality loans, Salinas said processing, underwriting and funding have been "transformed completely" in the last 18 months.
"More underwriting and quality control auditing has been added to the end of the process," he said. "Not only does an underwriter give final approval to every loan, in addition, we have a QC auditor [quality control] go through the file. This auditor checks 75 to 80 points of information to make sure all information given by the applicant is documented. This is something that is becoming more common as more lenders emphasize quality."
The mortgage market is not a place for any credit union that is less than completely committed, Salinas cautioned. He said if a credit union knows what it is doing and has good controls, processes and procedures in place, now is a "great time" to be in mortgages.
"Not only is there income for the credit union, this is the largest single financial transaction in members' lives, and to take that from banks is a great thing," he declared. "But credit unions must be fully cognizant of all that is required in this day and age to make quality loans. It is not for those breaking in or dipping their toes. There needs to be an investment by the credit union into its long-term health and growth."
