MANHATTAN BEACH, Calif.-Mike McCarthy knows the mortgage re-fi boom will dry up when interest rates finally move up from their long stretch of historic lows, putting all the more importance on purchase loans.
McCarthy, the director of retail loan production for $3.1-billion Kinecta Federal Credit Union, told Credit Union Journal that KFCU made a "conscious decision" a year ago to grow its retail platform, and to that end has since opened two new retail mortgage centers and introduced its "Purchase Power Mortgage Program."
According to McCarthy, the mortgage centers operate as "forward operating bases" in areas Kinecta serves.
"We already were one of the larger mortgage lenders, but we wanted to increase our presence and our sales staff," he said. "We had 25 mortgage loan consultants and three managers. Now we have 110 consultants on our way to 130."
McCarthy noted the credit union is certainly operating in a different mortgage lending market than just a few years ago. "The guidelines on credit and collateral have been tightened across the board. Some of the things lenders could do in 2005 they cannot do any more. The stated income loan that was so common back then is not available any more. Also, there have been changes in the appraisal process to put in a lot more checks and balances. Today, we have stringent guidelines in place and the quality of our loans has never been better."
The idea for the Purchase Power program came in the latter half of 2011, fueled by a desire to "make our value proposition better," McCarthy reported.
"We are enjoying the historically low rates, but more important is to stay focused on obtaining as much market share of the purchase mortgage market as possible," he said. "In the past we had a purchase special on pricing-in general one-quarter percent off the price. But when rates are moving every day, it became a question of, one-quarter off what? This program is a little more concrete in consumers' minds, and can be marketed easier."
Program's Components
The Purchase Power program has several components, including the borrower's choice of a $500 Kinecta Gift Card or $500 off closing costs; a 30-day closing guarantee that promises to return up to $895 in administration fees if the loan does not close in time; a 20% commission rebate with participating real estate agents, and membership in Kinecta's VIP Gold Club for one year. The latter comes with extras such as free safety deposit boxes, free checks, free wire transfers, share certificate rate bonuses and overdraft fee reversals.
According to McCarthy, the VIP Club could be worth up to $700 if members use all the services. He said the membership piece is something Kinecta felt would help generate more purchase mortgages. Kinecta's member services group and the branch managers worked closely together for months on development and launched the VIP component at the beginning of this year.
"We are trying to differentiate the Kinecta offering because the purchase segment is key for us," he said. "When the economy starts to move again and rates go up, the re-fi segment will pretty much go away so the purchase segment is important."
The VIP Club and the Purchase Power program also are an enticement for bringing in new members, McCarthy suggested.
"Our timing could not have been better as banks are nickel and diming people with fees. We think the VIP component maximizes the value credit unions bring to the table. The ancillary services would be expensive at a bank."
Kinecta's decision to add mortgage centers in Newbury Park, Calif., and, soon, a second location in San Diego County, were made based on their proximity to the CU's marketplace, said McCarthy. He said the facilities fill the role of "hubs" that allow members to apply for a loan or attend seminars on various real estate-related topics.
"We have a good brand name as one of the largest credit unions in Los Angeles," he asserted. "Orange County was a natural, as we have a presence there but not as much as we could. The northern part of Los Angeles County was underserved, which is why we opened in Newbury Park. We have a mortgage center in northern San Diego County, but next week we will open in [San Diego's] Mission Valley."
The mortgage centers now host educational seminars every other month and range from information for first-time homebuyers to how to by an REO or foreclosed property. McCarthy said the seminars have been very successful, and the CU has 120 people signed up to attend the next sessions.
Why Kinecta Is Expanding
"We have been asked why is Kinecta expanding when others are bailing out of the market? While the market is still turbulent and challenging is the best time for Kinecta to build its footprint, especially in our backyard," McCarthy said. "There is a lot of loan officer talent in the marketplace, and there is a good feeling for credit unions in general. And we are not expanding into new areas: these are places where we already have a presence so this is manageable growth."
McCarthy declined to identify how much of its mortgages it is holding in portfolio. Kinecta lost lost $24.2 million in 2011, excluding assessments. It paid nearly $6.4 million to the Corporate Stabilization Fund, leaving it with a loss of $30.6 million. Its net worth ratio was 7.07% ("Well Capitalized").
Its Allowance for Loan Losses was $66.3 million in 2008, then peaked at $90.4 million in 2009. In 2010 ALL dipped to $72.2 million, and declined to $60.2 million in 2011.
Details are available at www.kinecta.org/PurchasePower.
