With the unpredictable financial markets, credit unions are poised to significantly grow their share of residential mortgage lending activity in 2009. In the past, borrowers were bombarded with telemarketing calls, junk mail, and TV advertising from brokers and retail lenders. Today, however, that "noise" is getting quieter, and borrowers are growing wary of working with big banks and mortgage lenders in the wake of the current market volatility.
Although the total number of mortgages being sought is down, so, too, are the number of places a person can now go for a loan. For those following the news (and who isn't these days?), there has been very little negative mention of CUs. In short, CUs that position themselves as a "safe haven" for a member looking for a mortgage today have a high probability of capturing that business.
An indicator of the shift of lending activity toward CUs is the recent implementation of loan management technology by certain institutions across the country. These CUs are putting systems in place to increase their lending capacities without requiring additional staff.
For CUs thinking of expanding their offerings to include mortgages, or for those that already do, there are a couple of things you should keep top of mind to ensure that this venture contributes to your overall objectives.
One of the most important things to do to ensure you are running an ever-increasingly efficient operation is to measure your performance on a monthly basis. This idea holds true for every department-not just mortgage lending.
When it comes to your mortgage department, there is a simple way to measure and track efficiency. At the end of each month, count the number of loans funded. Then, count the total number of full-time equivalent (FTE) people that made those loans happen. For example, an underwriter, a closer, and a part-time accountant would be 2.5 FTEs. Finally, divide the number of loans by the number of FTEs-the result is your Efficiency Quotient (EQ). The larger the number, the higher your efficiency. In fact, if you can get your EQ to about 12-in other words, if you are funding 12 loans per month per FTE-you are doing OK.
While counting FTEs, include everyone involved in your mortgage lending operation (don't forget legal, compliance, accounting and accounting staff), without including loan officers and their managers. Typically, the sales side fluctuates a lot, and you don't want these changes to muddy your EQ.
Once you've measured your EQ, strive to make that number bigger and bigger each month. As your number gets better, be sure to reward your people to encourage continued growth!
Your People Are Key
If you think about mortgage lending as a manufacturing process, the raw materials are loan applications. The "factory" first matches the application to the right program, then checks the borrower's credentials and the property to ensure they meet the requirements of the loan program (underwriting). If all is good, closing documents are generated, reviewed, and signed. Then, the money transfers and a loan are created.
It is critical that each step in this "manufacturing" process be executed as efficiently and error-free as possible. After all, the fewer steps in the process, the lower the cost of business. Also, whenever a mistake is made on a file, someone will have to take the time to fix the problem that should not have happened in the first place.
To successfully manufacturer your loans, then, you need an experienced team. With the right crew, you will be better able to limit the number of stopping points in your process while also ensuring fewer errors along the way-a healthy combination overall.
Your Technology Is Important, Too
In addition to an experienced team, CUs should also leverage technology to drive efficiency and accuracy throughout the lending process.
There are a variety of solutions available for managing the lending process, often referred to as loan origination systems (LOSs). Some vendors attempt to deliver an all-in-one platform that theoretically automates every step of the process. These types of systems can be very effective in high-volume lending shops with giant budgets (think seven-figures) and lots of time available for implementation.
Most CUs, however, are better served by taking a modular approach by piecing together top performing systems from a variety of vendors to create an integrated solution that is considered best-of-breed. By going down this path, credit unions can limit their financial exposure (best-of-breed is typically much less expensive than all-in-one) while getting very powerful systems for each part of their lending business process.
For example, the core application of a leading LOS provider serves as the hub of the lending operation, with workflow rules ensuring that loans are ready to proceed through the manufacturing process before they advance. Many other vendors have created seamless interfaces that plug into that hub, ensuring data integrity throughout the process while extending the functionality to meet the business needs. One such plug-in provides automated underwriting and pricing engine solutions that assist members in finding a good loan program and shows real-time pricing information. When vendors team up to provide best-of breed solutions, the data captured and displayed automatically flows seamlessly between the two systems.
In addition, leading compliance services can be used throughout the process to ensure that no regulatory rules are violated. And, document preparation engines accurately and quickly generate the paper needed to ensure the right closing package is being used.
In today's complex and rapidly changing lending environment, trying to manufacture good, clean loans without leveraging effective technology would be a mistake.
Are Mortgages Right for You?
Finally, not all credit unions are interested in getting into (or staying in) the mortgage game. The good news is that there are a variety of vendors that can serve as your "virtual" mortgage department. They represent themselves as you-the CU-when interacting with your members, but use all their own employees and resources.
Today is a great environment for credit unions to offer mortgage lending services. By doing so, you are extending the value you bring to your members. By leveraging an experienced team with good technology, or by outsourcing the process completely, you can succeed in delivering this service to your members.
Rob Katz is president of San Diego-based Del Mar DataTrac. He can be reached at 858-550-8800 or at
