At many credit unions, two words now mean tremendous growth: residential lending.

In fact, mortgage lending may be the hottest area of growth for credit unions. The industry, excluding privately-insured credit unions, made 42% more real estate loans last year than it did in 1991, according to the National Association of Federal Credit Unions.

Credit unions are "the sleeping giants" of the home-loan market, says Bradford L. Murphy, president of CUNA Mortgage Corp., Madison, Wis., the lending arm of the Credit Union National Association.

"I think we will see 1,000 of our 13,000 credit unions in the nation become more aggressive in mortgage lending in the years to come," he said.

The American Banker's ranking of the 50 largest credit unions in mortgage holding appears on page 14A. The ranking also shows each credit union's originations for last year.

Big Growth Last Year

Some of the credit union posted truly spectacular growth last year.

Tinker Credit Union, Tinker AFB, Calif., saw its mortgage portfolio surge 173%, to $194.6 million. The Golden 1 Credit Union, Sacramento, Calif., notched a 213% increase, to $92.2 million.

Navy Federal Credit Union, Merrifield, Va., easily ranked No. 1. in mortgage holdings. It closed the year with a portfolio of $913 million, up 39% from 1992.

Despite the impressive gains, credit unions are still relatively small players in the mortgage market. Indeed, they are thought to account for fewer than 5% of all mortgage originations. And considering their not-for-profit status, continued growth in lending volume is not essential. Service to members is the only imperative, executives say.

"Yes, we have grown," said Richard J. Osius, managing director and chief executive officer at Washington, D.C.-based Bank Fund Staff Federal Credit Union. "But we are really a medium-sized financial institution. We have a very narrow market with very few members when all is said and done."

More Players Coming

Brian L. McDonnell, senior vice president, Navy Federal Credit Union, said it's difficult for credit unions smaller than $50 million to originate home loans without outside help or hiring experienced lenderS.

Still, Mr. McDonnell is convinced that "more and more credit unions are going to get into mortgage lending"

"As the consumer lending market is becoming saturated, there is a need for credit unions to provide more service to their members," he said. "People are used to using Us for other servicing and getting a good deal."

Forming cooperatives, like the CU Mortgage Corp., Pomona, Calif., is one way smaller credit unions are getting into mortgage lending. CU Mortgage, formed in 1985, provides the technical experience and manpower for loan originating on behalf of 50 California lenders.

Among larger credit unions, mortgage lending is extremely popular. Credit union executives say residential lending is more profitable than investing in standard treasury bills and other like investments. And besides, lending is a great service to credit union members, they say.

Steve Banks, vice president of lending at State Employees Credit Union, Raleigh, N.C., the second-largest mortgage originator among credit unions nationwide, said pricing is important to credit unions' future success in mortgage lending.

State, for example, charges members no more than $500 to originate a loan.

"We are trying to be successful, we are trying to be competitive," said Mr. Banks. But "our focus continues to be good service."

Rudolf J. Hanley, president and chief executive officer of Santa Ana, Calif.-based Orange County Teachers Federal Credit Union, the seventh-largest mortgage lender among credit unions, attributed his credit union's 15% rise in loan originations last year to better expertise and asset liability management. Mr. Hanley said better expertise will continue to help other credit unions improve their originations.

He said marketing was also important. Often, members don't know their credit unions are in the business of originating loans, he said.

"I don't see a lot of growth" in mortgage lending at credit unions, he said. "Over the long haul, I see just gradual, incremental increases."

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