RALEIGH, N.C. -
The Federal Reserve’s campaign to cut interest rates to spur the national economy has had a sometimes dramatic effect on mortgage activity. While lower rates have not been enough to lift falling home sales out of the doldrums, many consumers have taken advantage of better fixed rates as an option to soon-to-be-resetting adjustable rate mortgages.
Perhaps most importantly for credit unions, the subprime lending crisis that came to a head last August and September knocked numerous competitors out of the market. According to lenders all over America who spoke with the Credit Union Journal, opportunities for CUs abound during what some call a crisis.
Phil Greer, senior vice president of loan administration for the $15-billion State Employees’ Credit Union, spoke for many when he said his credit union has enjoyed a significant increase in re-fi activity. In June 2007, State Employees’ first mortgage originations were split 50-50 between purchases and re-fis. In October, he said, it was 64% re-fis. In December, the percentage of re-fis hit 70%; in January, 71%.
“Some of it is the declining rates, some is attributed to special mailing promotions we did to our members,” Greer said, adding State Employees’ did not lower its mortgage rates until recently.
The credit union’s mortgage promotion took three forms: in the first, it sent mailers to members who potentially had subprime loans with other lenders based on Equifax data. Greer said this resulted in about $81 million in activity from 561 refinance loans, with another $10 million in loans currently in process.
“These members were well-qualified and should not have been in subprime loan products,” he assessed.
A second mailer was directed to members who have a home equity loan with State Employees’ CU but have their first mortgage with some other lender. That promotion generated 426 loans for $46 million, with an additional 88 loans for $11.5 in loans in the process of being closed.
“Third, and this one caught us by surprise, we sent mailers to members with a first mortgage with us but no home equity loan,” Greer recalled. “We originated about 759 new home equity loans with ceilings on those loans of $23.6 million. This mailer prompted a lot of these individuals to come in and apply for a refinance first mortgage. We were trying to promote home equity loans, and did so, but closed almost 600 new first loans that were refinance loans.”
State Employees’ CU’s rates were “competitive” during the three promotions, but Greer said the CU did not follow the Fed downward. He said some of the “procrastination” by consumers when it came to refinancing in recent months stems from the fact their homes were not selling as readily as they once were. They’ve decided to do refinancing, remodeling, or otherwise stay where they are–whereas in past years they’ve been flipping their homes and upgrading to newer, larger spreads.
“This is related to the furor in the news over the subprime situation,” he declared. “Consumers have been waiting to see what would happen. The further they got away from these stories, the more likely they were to get back into the marketplace and consider doing refinancing.”
Competitors Decline
Greer acknowledged there are fewer competitors today, noting a number of lenders in North Carolina have closed their doors. “Based on those who are no longer with us, it is not a bad thing from a consumer standpoint. I have no problem with good, healthy competition. But unfortunately, consumers were abused in the subprime market. Borrowers who should not have been put into subprime loans were.
“I hope the publicity surrounding the subprime lending fiasco has made consumers more intelligent,” he continued. “When consumers understand they need to be dealing with someone who is trustworthy and honest, and advise them on a very serious financial matter, I hope more and more consumers will turn to their credit unions for this valuable service. We are finding that to be true. People are coming to us because they know they can trust us. We will not abuse them. We will be here to make that loan today and service that loan in the future.”
To date, the North Carolina housing market has not experienced the dramatic rates of appreciation some areas of the country saw, Greer reported.
“In retrospect, we were fortunate,” he said. “It was about 8% to 9% annually, not the 20% and 30% rates in some places. By and large, the N.C. market has remained steady–about 4% appreciation annually is the last figure I saw. We are not seeing dramatic declines in value, although there might be a pocket here and a pocket there. The North Carolina real estate market remains reasonably positioned today.”
SECU carries $8 billion of its own version of adjustable-rate mortgages, which he called “member friendly and fair.” The rate can only change once every two years and only by 1%. In addition, State Employees’ does not require PMI for loans over 80% loan-to-value, which can save thousands of dollars over the life of the loan.
“This makes it even more fair for our members,” he said. “Our members understand our adjustable rate mortgages are fair and they have proven to be fair. There are problems in the news with adjustable rate loans, but those stories are not about our adjustable rate loans.”
According to Greer, 50% of lenders in the marketplace have tightened their lending guidelines in the past few months, but not SECU. “We did not get involved in the subprime mess,” he said. “Our standards were appropriately placed in the past, so our portfolio performs well. Our foreclosure rate in 2007 compared to 2006 was just two-hundredths of a point higher, and it is 10 times less than the national foreclosure rate. We have a history of mortgage loans that perform properly.”
“While there might be individuals who consider this a challenging time, we are looking at this as an opportunity to serve our members,” Greer added.
