MADISON, Wis. – Bring out the champagne. Twenty-five years after it was formed as CUNA Mortgage Corp. to help credit unions participate in mortgage lending by providing expertise and securing them mortgage funds, CUNA Mutual Mortgage is celebrating its silver anniversary this month. Credit unions, like other mortgage lenders, enjoyed record low mortgage rates over the past 18 to 24 months that helped buoy their mortgage loan portfolios. CUs' total first mortgage portfolio as of the end of the second quarter 2003, according to Callahan & Associates, was $110.5 billion, and their total real estate portfolio was $158.2 billion. But in November 1978 when CUNA Mortgage Corp. was formed by CUNA Mutual and ICU Services – which later because CUNA Service Group – credit unions' mortgage lending landscape was much different. Congress had just enacted legislation that allowed credit unions to offer mortgage loans to their members. Mortgage rates hovered at 12%, and CUNA Mortgage Corp. hired its first staff that included four employees – James Bouwkamp, president; David Shiremeyer, vp, sales; William Young, vp, underwriting; and Patricia Gregoire, office secretary. By the end of 1979, it hit another significant milestone in its history – the company serviced 25 loans for $1.1 million, and by the end of 1980, it serviced 143 loans for $7 million. After that, CUNA Mortgage Corp. continued to hit servicing milestones – * in 1981, it began selling and servicing Freddie Mac and Ginnie Mae loans; * in 1985, it serviced 3,899 loans for $180 million; * in 1987, it serviced 12,365 loans for $643 million; * in June 1990, servicing reached $1 billion; * in 1992, it serviced 39,655 loans for $2.52 billion; * in 1993, it serviced 56,700 loans for $3.72 billion Three years later, CUNA Mortgage Corp. introduced its automated underwriting system to quicken the mortgage loan process, and two years after that, CUNA Service Group sold its 50% interest to CUNA Mutual. That same year, 1998, CUNA Mortgage debuted its CU Connect online loan origination system. In March 2000, after operating for two years as CUNA Mortgage Corp., the company merged with CU Mortgage of California, headed by Stephen Renock, to operate as CUNA Mutual Mortgage Corp. That same month, it signed a Web service agreement with Mortgagebot to give members an online estimate of all closing costs and credit unions the ability to capture loan applications. The milestones didn't stop there: * in October 2000, CUNA Mutual Mortgage formed an alliance with Freddie Mac to offer Internet-based mortgage originations; * last year, the company provided $4.7 billion in loan origination services and reached $9.02 billion in loans serviced. * as of October 2003, CUNA Mutual Mortgage's servicing loans totaled $10.7 billion for 104,000 members. Not in Kansas Anymore Dan Rotert, svp and COO for CUNA Mutual Mortgage joined the company last year with 13 years of experience in senior leadership positions in lending, mostly on the bank side of the business with banks such as Wachovia Bank, Winston-Salem, N.C., and Fifth Third Bank in Cincinnati. Thinking back to how the mortgage lending industry looked when he first started out in the business, Rotert said "it didn't even come close to resembling what we have now. For one thing, loan origination systems were just on the cusp of becoming a necessity. In the late 1970s, loan origination systems didn't even exist. Now, mortgage lenders couldn't live without having a loan origination system." To add another perspective, Rotert offered this bit of information: at the height of the latest refi boom, lenders were struggling to close mortgage loans within 60 days. "If it took you any longer than that, consumers were beating you up," said Rotert. In comparison, during the previous refi boom in the 1980s, loan applications took about 180 days to close, he said, adding that that was acceptable then because consumers' expectations were lower and lenders didn't have ready access to information like borrowers' credit history like they do now. "The development of the automated underwriting system created a mental shift for lenders," he explained. "Before, a loan package was developed for each individual borrower and loan decisions were determined by committee. Underwriters scrutinized every loan package down to minute details. Now this has been replaced with a software system that can make a loan decision in seconds," he explained. "Underwriters today really just validate automated decisions." Rotert credits an advancing market with pushing the development of mortgage technology that in turn allowed for more non-traditional mortgage lenders to enter the market. In the late 1970s, he said, the secondary mortgage market was just developing. But then Fannie Mae introduced mortgage-backed securities "and that changed the dynamics of the mortgage market from one of being a consumer accommodation market to a securities market," said Rotert. "Before, a lender would make a loan and hold on to it for the term of the loan. With the advent of mortgage-backed securities, mortgage lending became a volume based business. All of a sudden, lenders had lending capacities they didn't have before," he explained. Technology and the maturation of the secondary market have been the two drivers of the mortgage industry, Rotert opines. Ironically while credit unions have been early adapters of mortgage technology, Rotert said they haven't been as quick to realize the benefits of mortgage lending. There's still a sizeable number of credit unions that don't offer mortgages-too many in Rotert's opinion-and among those that do, he said "they still see it as a seasonal business." He added that, "We're slowly getting credit unions to realize that they have to market mortgages year-round. The latest refi boom has hopefully helped credit unions to realize the value of continuous mortgage marketing. To be members' preferred financial institutions, credit unions have to be in mortgage lending continuously so they're always able to offer members a full range of products and services. "Credit unions need to think of the life cycle of mortgages and realize that if they don't market mortgages constantly, then another provider is marketing to them," Rotert continued. "Credit unions can't afford not to be in mortgage lending. If they take that position, they might as well sell their member list to their competitors." To those credit unions that argue they're too small to offer mortgage lending, Rotert says "being too small is incidental. CUNA Mutual Mortgage offers credit unions enough options that they don't even have to lift a finger if they don't want to." CUNA Mutual Homeownership Solutions allow credit unions to enter mortgage lending at a level that suits them. They include: * MEMBERS Choice netmortgage, a Web-based product that allows members to apply and receive instant approval online; * Member-Direct: credit unions refer members to loan consultants. CUNA Mutual Mortgage handles the loan processing, underwriting and closing; * Wholesale lending: suitable for credit unions that want their own mortgage department but don't have the resources, or are looking for alternatives to improve or enhance their existing mortgage department; * Correspondent lending: credit unions hold the mortgage lending ownership as they manage the entire loan process, from origination through closing and funding; * Loan administration: allows CUs to include servicing or subservicing without additional staff; * Private mortgage insurance: allows low or no down payment, high loan-to-value mortgages while protecting the credit union. Rotert is equally as adamant about credit unions that sell their mortgage servicing to a non-credit union provider. "Whenever I hear about this, I think the credit union might just as well not be in mortgage lending at all," he said. According to Rotert, of every loan originated by a credit union, more than 50% are being serviced by a non-credit union provider. He's not sure it matters to members who services their loans, "but it should matter to the credit union. If the servicing is being handled outside the credit union system, then you've essentially turned your members over to a competitor." As much as he encourages credit unions to offer mortgage lending, Rotert is under no illusion about dealing with the secondary mortgage market. "It is intimidating, that's not a false perception," he said. "There's a certain level of expertise that goes with trading on the secondary market, and there are some inherent risks. That's why only large credit unions are direct secondary market sellers. But credit unions' concern of having to sell mortgages on the secondary market shouldn't keep them from getting involved with mortgage lending," said Rotert. CUNA Mutual Mortgage sells mortgages on the secondary market for 579 credit unions. Trying to predict what the mortgage market will look like in five years is a futile exercise, said Rotert, because rates are still so volatile. One noticeable shift to lenders has been in the ratio of refinanced loans to conventional loans. At the height of the refi boom the ratio was running about 80/20, said Rotert, but now it's about 60/40. "We didn't do ourselves any favor by taking away any disincentive to refinance, namely by charging points," he said, adding that it will take a few more months for credit unions to realize any gains in market share because of the high incident of "serial refi borrowers" during the last boom. Rotert is confident that credit unions will remain competitive mortgage lenders. Coming out of the last refi boom period, "experience has put them in a position to be more competent mortgage lenders. There have been efficiencies learned and knowledge shared." But to get there, credit unions will have to be able to differentiate themselves from other mortgage lenders. "Traditional methods won't get it done," said Rotert. "There should be no reason why a member needs to go to any credit union competitor like Countrywide or BankofAmerica for a mortgage product mix. CUNA Mutual Mortgage's objective is to take the pain out of the process of developing mortgage lending products." That extends, he added, to servicing and "providing an infrastructure that allows us to combine the efficiencies of the credit union marketplace so everyone gains." Rotert admitted he doesn't know what the next big driver of the mortgage lending market will be, "but CUNA Mutual Mortgage wants to be able to adapt technology to deal with that and let credit unions compete. We want to be able to give credit unions the tools that allow them to be at the pinnacle of the mortgage lending marketplace. "We have no misguided desire to be all things to everyone, but we want to be the driver of all things related to mortgage lending to credit unions," Rotert said. -

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