Credit unions for the most part have had limited success in convincing members that they are a viable option for mortgage loans, and nationally credit unions still have less than 2% of the mortgage origination marketplace. Well, that’s about to change!
* Historically low interest rates, in recent years, led to higher yielding loan products being offered to boost production and increase loan portfolio yields. This brought about a loosening of loan underwriting standards and the introduction of teaser rates with dramatic or volatile interest rate adjustments.
The creation of these products initially boosted loan production and allowed more consumers to buy a home or a more expensive home, but within the last 12 to 18 months their corresponding monthly payment increase has spurred loan default increases which has led to some areas of the country facing a reduction in home values and the elimination of most all of the loan products which spurred production.
* As a result of rising defaults, state and federal legislators entered the fray (they are still not done) in an attempt to create underwriting standards that would shore up a consumer’s ability to pay, increase consumer disclosure, and restrict the use of pre-payment penalties. Additionally, a focus on a loan originator’s ability to earn compensation and create a loan originator registration and/or licensing scheme that could include continuing education requirements, bonding, and the condition to maintain errors and omissions insurance is being contemplated in the federal legislature.
* The additional legislative and regulatory burdens, combined with a reduction in loan products, rising defaults and the addition of stricter underwriting requirements led to a reduction in mortgage capital which has caused a significant retrenching in the number of companies focused on the origination of residential loan products.
Additionally, the mortgage broker community has seen a reduction in their number due to negative publicity from the subprime mortgage crisis and their increased compliance costs.
Competition Is Shrinking
All of this bodes well for credit unions, as competition is shrinking!
Credit unions that have relationships with Realtors in their community or those that would like to have a relationship with Realtors in their communities should be able to make significant inroads with families buying homes in their markets. Existing home sales, while on the decline in some markets, was still one of the top five years in history in 2007, with 5,562,000 single family homes and condominiums exchanging hands nationally. In Metro Denver, for instance, there was somewhere near 50,000 existing home sales last year, yet the two largest credit unions in the marketplace had only produced 319 and 273 first mortgages, respectively, through September of 2007.
While neither of these credit unions place a great emphasis on the purchase-money marketplace, doubling their production would only mean garnering somewhere between 0.55% and 0.62% of the purchase-money marketplace. I suspect that this is the case in the majority of markets as credit unions have historically not tried to develop relationships with Realtors.
With a little effort you can promote yourself as a mortgage lending resource to a very receptive audience right now and here are a few suggestions:
CUs In Unique Position
Credit unions are in a unique position with their select employer groups to introduce Employer Assisted Housing programs. The National Association of Realtors has canned presentations available with their “Home from Work” program developed in conjunction with Fannie Mae that credit unions can access through their local Realtor associations.
These programs range from homebuyer counseling, to matched savings, to forgivable loans to outright gifts and are a great way for select employer groups to build employee loyalty and retention. In many cases your state has select Realtors that will actually go out with you to a select employer group and give the presentation.
Realtor continuing education class sponsorship is a very inexpensive way for a credit union in get in front of large groups of Realtors.
Typically the sponsor provides food and beverage for the event in exchange for two to three minutes in front of the group. These classes are held ongoing through local Realtor Associations or through local title companies. For greater emphasis, credit unions with training rooms can make their space available to these groups which can lead to greater consistency in messaging. Make sure you emphasis retention of servicing and reliability as a funding source!
Real Estate Broker office visits can be difficult, but, again, food can be a door-opener if done correctly. The receptionist is the gatekeeper typically and you must make sure to ask who brings in food regularly and on which days (avoid those days!) The receptionist will also typically take your promotional fliers and distribute them in the through mail receptacles or directly to the agents. Messaging is important and again emphasis your retention of servicing and reliability as a funding source.
Realty Buying And Selling
Realty buying and selling services are available through a number of providers in which members will receive up to a 25% commission rebate for their realtor’s portion of the commission which can be used for closing costs or provided as a check to the member. These programs are at no cost to the credit union and include a private labeled website with great data and tracking resources to show member usage.
From within existing member bases–do you have a mortgage ad on your homepage and/or on the homepage for Internet banking? At a minimum do you have rotating/refreshing banner ads that include a mortgage advertisement? Do ads lead to one-click access to mortgage rates or an online application?
What about word of mouth? What words are you putting into your member’s mouth as it relates to your mortgage lending prowess that you want them to repeat to their sphere of influence? Do you have branch displays or a newsletter? Is there a repeatable message in your display or advertising?
If balance sheet capacity is an issue, consider selling loans on a flow, mini-bulk or bulk basis or swapping loans on a mini-bulk or bulk basis for a marketable security. There are great benefits to the strategies and a credit union can do both simultaneously if that is a best execution.
In any event, the time is right for credit unions to grow their production of mortgage loans and the marketplace has literally created the Perfect Storm as a window of opportunity.
The time to grow your sourcing capability for mortgage loans is here. Are you prepared to do something about it?
Steve VanSickler is Director of Community Lending for LenderLive Network, Inc. based in Denver, Colorado. He can be reached at clientsuccess
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