LAS VEGAS -
"There are huge opportunities for credit unions, especially in markets such as California and Nevada, where other lenders have pulled out of the marketplace," said Laura Pephens, managing principal of San Clemente, Calif.-based Pephens & Co. "This marketplace has created a once-in-a-lifetime opportunity for credit unions. Credit unions are in the best position of any business in the country."
Agreed Andrea Blais, director for Pephens & Co.: "This is the type of environment credit unions know how to perform in."
Pephens and Blais told attendees of an educational session at WesCorp's Credit Union Outlook conference here the headline-making dive by the mortgage market over the past several months was similar to the 2000 George Clooney movie "A Perfect Storm" created by a convergence of factors. They said problems began near the end of 2006 when real estate values in certain pockets of the country began to decline.
From November 2006 to February 2007, the practice of "serial refinancing" came to a "screeching halt" because home price appreciation had stopped, preventing borrowers from switching, yet again, to a new hybrid mortgage.
"Instead of refinancing, some people went into default," said Pephens.
In the first two months of this year, Wall Street analysts realized the performance of mortgage-backed securities for subprime loans in 2005 and 2006 were below expectations.
The response was a tightening of credit standards and a loss of liquidity in the subprime market. The tightening and loss of liquidity spread to Alt A lending, then jumbo mortgages, and by August, the investing marketplace had evaporated.
Today, Pephens assessed, the Alt A and subprime markets are "gone," the jumbo market is minimized, and a large segment of consumers-especially first-time homebuyers-are having difficulty finding mortgages. Banks and thrifts are winding down their presence, and many mortgage banking entities have disappeared.
"Consumers need someone they can trust, and who better than a credit union, which is not-for-profit?" Pephens asked.
According to Blais, too many CUs believe the risks of mortgage lending are too great at this time. Rather than playing it safe, she counseled, credit unions should responsibly seize the opportunity. The long-term impact on membership growth of not helping would be disastrous for the future of the movement, she added.
"Consumer confidence is low and these people are looking for someone they can trust and rely on," said Blais. "If we don't help our members, we know they will go to other financial institutions. If members have mortgage loans with a credit union, research shows they will have six to eight additional products."
Credit unions must balance portfolio and non-portfolio lending, Pephens advised. She said technology has enabled credit unions to assess the risks in the secondary market. Although many investors have fled, Pephens predicted the secondary market would "calm down" no later than February 2008.
"How many credit unions go to their membership and say, 'We can be your trusted advisor'?" Pephens asked. She said CUs must take steps to increase awareness and let members know the credit union is available to help.
Other advice: create a "Trusted Advisor" marketing campaign, transition home buying programs into "home savings" programs, and consider using certified financial planners. She said a great online source for mortgage data is www.mbaa.org. "With less than 3% market share, credit unions have tremendous growth potential," Pephens said.
more
Read more about how credit unions are trying to leverage the troubled mortgage market at cujournal.com and searching the following bolded terms in the archive:
* Opportunity Knocks
* NCUA Char Discusses Recent Mortgage-Related CU Turmoil
* With Mortgage Market A Mess, Credit Unions Can Come The Rescue
* Where The Opportunities Lie
* Bracing For Impact
* Market's Downward Spiral Presents Investment Opportunities
* Take Action Now To Avoid Getting Sideswiped
* No Retreat: CUs Positioned To Help Members-And Selves
