Simple Mortgage Equation? The Math. The Challenge? Capturing Numbers
To Bob Dorsa, the math is easy.
The home ownership rate in the United States is 72.2%, the highest on record. With 80-million members, about 25% of the U.S. population, credit unions have just a sliver of the mortgage market, at less than 2%.
The challenge lies in closing the gap.
"Mortgage lending is the future of credit unions," he told The Credit Union Journal. "Where better to find members than in the ranks of real estate lending? People buying homes, especially first-time home buyers, are the younger people credit unions are in dire need of."
Dorsa, the president of the American Credit Union Mortgage Association, sat down with The Credit Union Journal during ACUMA's recent conference here to discuss the state of the mortgage lending industry. According to Dorsa, real estate lending efforts by credit unions suffer due to preconceived notions on all sides. He said the public's perception of CUs needs to change; as younger people in particular do not view credit unions as "exciting." For their part, he continued, CUs have a lack of respect for Realtors and credit unions tend to look down their collective noses at mortgages.
Add it all up, and you have a statistic NCUA Chairman JoAnn Johnson cited in her keynote address at the ACUMA conference: CUs hold just 1.95% of all mortgage loans in the U.S.
Johnson told the group she would like to see that number grow. Dorsa said it must for the health of the movement, but added improvement will come only if several things change. For starters, CUs must realize the interest rate is not the sole driver in a borrower's decision and relationships are important.
"Credit unions must change their perception of Realtors. Some think of Realtors as an enemy. They need to respect Realtors as professionals. Credit unions should find out which of their members are Realtors, and then take them to lunch. They won't have to educate those Realtors what a credit union is. The first step begins at home."
Next, Dorsa said, CUs should put out the word to non-member Realtors in their local community-letting them know the credit union is a viable option for a mortgage. It is critical, however, for CUs to deliver.
"Credit unions should educate Realtors that they are playing in that game, and then back it up. Credit unions have less room for error. If Countrywide screws up a deal, the Realtor will cut them some slack. But, if a Realtor takes a chance on a credit union, it must do the loan well and responsibly."
Another aspect in the low penetration of mortgage lending in the movement is a lack of regard for mortgages. According to Dorsa, real estate lending has never been "respected" in CU circles because it has not been seen as "sexy" as car loans. "The top 300 credit unions have at least 80% of the loans outstanding," he said. "There are 3,000 credit unions that have no real estate loans."
Asked about the oft-expressed concerns the nation's real estate market is in a "bubble," which could lead to a decline in home prices, Dorsa said the supposed problem is overstated. He said the National Association of Realtors put the total value of all real estate in the country at approximately $14 trillion. He said the aggregate total of loans on this property is approximately $7 trillion.
NCUA's Johnson said during her keynote to the ACUMA conference she was worried about the proliferation of interest-only mortgages; especially in instances where consumers appeared to be opting for the product simply to be able to afford higher-priced homes in red-hot housing markets. Dorsa's response: it is something to keep an eye on, but not a reason to stop pursuing real estate loans.
"It is difficult to legislate or regulate what is in people's best interests," he said. "If a credit union tells someone he is over his head and it won't give him a loan, he is going to go somewhere else. California is different from Nebraska-people are taking interest-only loans and relying on appreciation to be their savior. People do what they do; there's caution and there's overreaction."
To keep members from becoming overextended, loans should done properly and CUs should offer plenty of counseling, Dorsa said.
One thing to keep in mind, he added, is real estate loans are among the safest from a security standpoint. "We do not want to be in the home ownership business, but if I have to take my medicine, I'd rather have a house than a signature on a note. And, credit unions have very few foreclosures."
Dorsa said he believes the future of membership growth could be greatly enhanced if CUs could harness real estate lending. He said credit unions must invest money in marketing in order to be successful.
"The credit union share of mortgages has never been above 2.4%. If we could move that number by 1% to 3% - which would be a huge undertaking-the credit union system would grow by $70 billion, with a 10% increase in asset base," he continued. "Before I retire, I'd like to see the credit union asset base grow to $1 trillion. My great hope is our system can become viewed as a home lender."