Credit unions may never rank among the giants of home loan origination, but their market share has grown so dramatically they could be called the industry's mouse that roared.

Federal credit unions' combined share of first- and second-lien mortgage volume, including home equity lines of credit, nearly doubled last year, to 6.19% last year, from 3.62% in 2007, according to data compiled by SourceMedia Inc.'s MortgageStats.com and the National Credit Union Administration.

If Navy Federal Credit Union's numbers are any indication, that growth is continuing. The Vienna, Va., lender is well on its way to topping last year's $5.7 billion in originations and matching — if not exceeding — its $6 billion estimate for this year. In the first five months alone it originated $3.3 billion in home loans.

Jack Gaffney, Navy Federal's executive vice president for lending, said the origination growth rate for credit unions as a group probably has outpaced that of other players.

Credit unions and other small depositories have gained customers as the reputations of some large players that made more aggressive loans during the market's boom have become tarnished by difficulties borrowers have had paying those loans.

Gaffney said Navy Federal's mix of business reflects this. Forty-eight percent of its refinance volume in the first five months came from borrowers who previously had loans with other lenders, he said.

Credit unions were not immune to the fallout from the boom's excesses. Some have numbered among the mortgage market participants facing fraud charges, and as a group they hold a fair amount of second-lien products, which generally are riskier than first-lien loans.

But usually they tend to enjoy a better reputation than many in the residential real estate finance business and generally pursue strategies considered to be low-risk.

"People are looking for people they can trust to originate a mortgage," said Les Parker, the president of Parker & Co., a mortgage advisory firm whose clients include credit unions.

Credit unions and community banks are benefiting from this trend, Parker said. But while community banks may be poised for some big gains in the mortgage business, how much credit unions can do "is another issue."

The gains in credit unions' business are at least partly a product of the times. Like most lenders today, whether their refi-driven originations continue to grow depends largely on the temporary federal initiatives aimed at reducing rates by buying bonds. These have been largely successful this year, with the exception of recent spikes in Treasury yields and mortgage rates.

As is the case for other lenders, while some federal policies are benefiting credit unions' mortgage production prospects, others are hurdles. The Home Valuation Code of Conduct that lenders must now follow in obtaining appraisals on loans headed for Fannie Mae and Freddie Mac has been one of the biggest for Navy Federal, Gaffney said.

"It's been a pain point for us … in terms of getting loans through the system," he said. The costs of implementing the code are "not trivial to our members." Navy Federal's redesigning of its workflows has been cumbersome and resulted in delays in getting appraisals, Gaffney said.

Also putting some constraints on home loan growth are the membership nature of credit unions and regulatory as well as business culture changes they would have to adapt to in order to collectively be bigger contenders in the mortgage business.

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