More and more credit unions are entering the mortgage banking arena through the creation of for-profit subsidiaries known as credit union service organizations, or CUSOs.
While credit unions still account for a small portion of the multibillion-dollar mortgage origination market (the exact volume of business they do isn't readily available), dozens of credit unions have positioned themselves over the last five years to maintain a hold on mortgage servicing and loan origination fees as well as mortgage-related insurance products like homeowners and title insurance. Some, such as Navy Federal Credit Union, rank among the country's biggest issuers of Ginnie Mae securities. [See Ginnie Mae Leaders List]
As a result of this trend, as well as the accelerated move by credit unions into mutual funds and other services, CUSOs are seeing a kind of a "renaissance in the '90s," according to Robert Dorsa. president of the National Association of Credit Union Service Organizations.
"For many years CUSOs lost money as people jumped into the securities business, mutual funds, mortgage banking without really knowing anything about these things," said Dorsa. "As a result, CUSOs got a reputation as a waste of time." Consequently, many of the operations that were started up in the 1980s, the CUSO heyday, were either shuttered or cut back.
But the increasing sophistication of credit union management and the growing size of the industry has improved the operations of many CUSOs. CUNA Mortgage Corp., of Madison, Wis.. reached $3 billion in mortgage servicing in 1992, a 500/o increase over 1991.
CUNA Mortgage is an arm of the credit union national Association, the ubiquitous credit union trade association that assists the nation's 13,800 credit unions in all phases of financial services. It took CUNA Mortgage 11 years to reach its first $1 billion in servicing and two more years to reach $2 billion.
More than 2,100 credit unions, many of them mom-and-pop organizations that cannot service their mortgages themselves, have their loans serviced by CUNA Mortgage. The figure is up from the 1,800 participating in the program in 1992.
The company provides a variety of mortgage services, including marketing, processing, risk management and servicing, as well as packaging and selling of mortgages on the secondary market. CUNA Mortgage now services more than 46,000 mortgages for credit union members.
While CUNA Mortgage has enjoyed success, most CUSOs are only marginally profitable, Dorsa said. He estimates that only a third of CUSOs earn a profit.
While mutual funds brokerages and insurance operations have emerged as the most popular form of CUSO, mortgage-related activities are also among the most popular. According to Nacuso, at least 23 CUSOs provide mortgage loan origination services, 18 of which service mortgages, and dozens more sell mortgage-related products.
Ted Bacino, marketing director for San Francisco-based Patelco Federal Credit Union and a director of Products and Research Organization for Credit Unions, said many CUSO services can just as easily be provided through the parent credit union. But the advantage of a CUSO is that it can concentrate on the special services.
"This way," said Bacino, "you have someone responsible for these products, for marketing, and they can concentrate on this business.