Offering Great Service Isn't Enough In Tough Mortgage Market

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With the median price of a single-family house in its market cresting at more than $550,000, only a small percentage of the population in Orange County, Calif., is able to afford to purchase a home.

As a result, Orange County Teachers Federal Credit Union has had to go to great lengths to compete in the local mortgage market.

Steve Renock, executive vice president of financial services for Orange County Teachers FCU and president of its subsidiary, OCTFCU Mortgage Company, shared its strategy with the CUNA Marketing and Business Development Council conference here.

Renock said the Santa Ana, Calif.-based credit union focuses on member service and continually seeks feedback through member surveys. "Everybody says they have good member service, but we think we go that extra step," he said.

But despite that good service, just 6% of OCTFCU members who have a mortgage financed through the credit union. Renock said OCTFCU opened the mortgage subsidiary a few years ago, but has been able to raise the penetration rate slightly in what he called a brutally competitive market.

"In the Los Angeles and Orange County area, AM radio stations carry six to seven mortgage ads per hour. There are incessant mailers sent out by lenders," noted Renock. "There are mortgage billboards everywhere. We tell members, 'We'll help find what's best for you.' We don't want them to go somewhere else, because we think we have good products, but we give them the education they need."

One of the difficulties OCTFCU Mortgage faces is loan companies that advertise 1% APRs -with an asterisk. Renock referred to these as "neutron mortgages."

"They save the house, but destroy the homeowner," he observed. "They can bring negative amortization. They might work if someone stays in a house for 30 years and prices continue to rise. But, if prices stagnate, or if people want to sell their house in a few years and move up, they can end up owing more than the house is worth."

"It is difficult to stay competitive, to keep our name in front of our members," he continued. "We use targeted direct mail. We send postcards to people in a certain age group who do not yet own a home."

Studies show approximately one in seven OCTFCU members is moving at any given time, but the credit union does not know which one, Renock pointed out. As a result, it must do constant marketing, which costs money. However, if it didn't advertise, members might assume OCTFCU no longer does mortgages, or is not competitive.

OCTFCU Mortgage uses several methods to keep members informed. Renock said the primary information source for the membership is the credit union's newsletter, known as the "Report Card." The newsletter is included in each member's checking statement.

The CU puts a lot of effort into its website, he said. In addition to a rate chart and a mortgage calculator, there is an online mortgage application service.

"We make it easy for members to get information and/or apply," said Renock. "The application is brief. Most people can complete it in 30 minutes, but if someone is very proficient with the computer, it can be done in 15 minutes."

Another way of reaching members is through home buying seminars. Renock described them as a member education benefit, as well as an opportunity to interact directly with people who are looking to buy a house. "We make sure the member is as comfortable with the process as they can get. We have been doing these seminars for two years.

The seminars are offered approximately every other month, though OCTFCU Mortgage gave eight in 2004. Many of the attendees were informed of the seminars by members who attended previous versions, he said.

The company also advertises in a local mortgage publication. Renock said this provides community exposure and helps convey a public commitment to be a mainstay mortgage provider.

"We want realtors to know we have specialty products for members who are first-time homebuyers," he explained. "The advertisement doesn't bring hundreds of calls each month, but it does generate a couple dozen calls per month-which is a couple dozen more than before. The ad costs $900, so it only takes a couple of loans to pay for it."

The mortgage programs include a specialty mortgage program for educators, OCTFCU's core membership. It features a loan amount up to $750,000, with no down payment or private mortgage insurance. Renock said it carries an adjustable rate which is slightly higher than offered by competitors, but the elimination of PMI saves members money.

"It is tough, on a teacher's salary, to buy a home in Orange County. We work with members on the purchase, and later, if they get into any trouble making payments. Other lenders don't worry about the borrower after the purchase is through."

OCTFCU Mortgage also has a realtor affinity program, which offers members a rebate on the brokers' commissions. This is offered through a partnership with Member Benefit Services, an affiliate of Coldwell Banker.

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