TUKWILA, Wash. - The refi party's over, now what? That may be a question most credit unions, and for that matter most mortgage lenders, are asking themselves these days. Record low rates up to a few months ago bolstered credit unions' ability to capture mortgage loans, particular refinances. But mortgage rates are slowly inching up and most mortgage specialists are concurring that the refi boom is over. So now it's time for credit unions to adjust their mortgage strategies and start thinking about the purchase market. "Credit unions have been wildly successful over the past two or so years taking the overflow in the refinance market. The refi boom allowed credit unions to enter the market and provide professional services, but unfortunately that doesn't translate in to volume," said Joe Brancucci, president/CEO, Prime Alliance Soluions, vp of lending/chief lending officer for Boeing Employees CU, and the recently appointed chairman of the CUNA Lending Council. The purchase market is driven by realtors and builders, said Brancucci, and this is an area credit unions have been weak in, so they need to develop relationships with both groups if they're going to be successful in the purchase market. He cited by example, CU Realty that offers credit unions an online real estate and home rebate program that provides an end-to-end home buyer and seller solution and pays members a rebate figured on the home's sales price. In addition, real estate agents that participate in the program and are referred to CU Realty by a participating credit union, give up a portion of their commission at the closing, that goes towards a rebate paid to the member of up to 1% of a home sales price on homes the member sells or purchases. "My biggest fear is that credit unions will get disconnected in mortgage lending because they're not purchase volume driven," said Brancucci, adding that he appreciates that mortgage lending is a "very expensive commitment and it takes a lot of volume to justify the expense. When it comes down to a credit union deciding whether to invest in a brick and mortar facility or a new ATM, or choose to expand its mortgage activity, it's likely going to go with whatever will give it the fastest return." Which is really a shame, said Brancucci, because credit unions have so many things going for them when it comes to mortgage lending and that allows them to make a solid mortgage offering to members. "There are a lot of hard decisions credit unions have to make if they want to compete in the purchase market and be in it for the long haul," said Brancucci. Several credit unions have already taken steps to transition from a refi to a purchase market. GTE FCU, Tampa, Fla., for example, recently came out with two new ARMs products - a 5-1 ARM and a 7-1 ARM - that offer the borrower a fixed rate for the first five years of the loan and then an adjustable rate for a term up to 30 years. "Even if the mortgage rate goes up after five years, at least the member gets a guaranteed rate that doesn't fluctuate for the first five years," said Kim Yarnelli, vp of mortgage lending for the $1,653.9 billion credit union. "So it's a good way for a member to get in to a home at a low rate." GTE FCU year-to-date originated $316 million in mortgages, and as of October it sold $138 million on the secondary market to Fannie Mae. The credit union is currently servicing $640 million in mortgages. Yarnelli said the falloff in the credit union's mortgage traffic in recent months has been very noticeable. Up to about a year ago, GTE was typically processing about 400-500 mortgage applications a month and it maintained about 1,000 applications in the pipeline from 2001 - 2003. But from Sept. 20-Oct. 20 of this year, the credit union had about 160 new applications and it's had about 700 applications in the pipeline. The credit union which serves approximately 177,000 members is also working on strengthening its home equity product. Yarnelli said many members in the past year or two refinanced so they'd have money to fix up their homes. "Now that rates are going up, we want them to know that by using our home equity loan, they can still get those home improvement jobs done," he said. In another initiative to shore up its strength in the purchase market, Yarnelli said GTE FCU is working on establishing a network of relationships with area realtors and developers. He estimates the latter group has the potential to channel about $40 million in loans to the credit union. When the refi volume was high, GTE FCU outsourced the processing of loan applications to two local and one national company. Yarnelli said he will probably pull back from outsourcing, but he won't eliminate his relationship with the companies altogether "just in case we have a huge influx in applications again, but right now the volume doesn't warrant it." Desert Schools FCU in Phoenix, Ariz., has also been getting itself ready to deal with the emerging purchase market. The $2 billion credit union has a $690 million real estate portfolio. It originated YTD $285 million in mortgages and sold YTD $132 million in loans to Fannie Mae. "The refi boom is over, now credit unions have to focus on the purchase market," said Robin O'Rorke, vp/chief lending officer for Desert Schools. He explained that the credit union in November began paying its loan officers commissions for purchase loans they close as a way to steer them toward those types of transactions versus making refis. Loan officers are also being encouraged to stay in the field, meet with realtors and builders, and attend grand opening events at home sites. The credit union also recently began a Builder Discount Program with KB Homes, one of the largest builders in Arizona. O'Rorke said most builders require a $5,000-$10,000 deposit on a home before they'll start construction. But through the program, that deposit is reduced to $1,000-$3,000 for members who are preapproved. In addition, the member is given a $1,000 gift certificate to use at the home builders dcor center. "We're giving the member immediate conditional loan approval, so the builder feels comfortable going ahead and starting the house," said O'Rorke. Desert Schools' members who are in the market for a new home can also learn about homes that are for sale, and access information about communities and realtor bios through the credit union's Web site that's linked to the multiple listing service. The credit union uses CU Realty's program, so members additionally receive a 1% rebate towards their new home purchase. "The developing purchase market will separate out those credit unions that are in mortgage lending for the long haul from those who were just in it on a whim because rates were low," said Brancucci reflecting on the evolving mortgage market. -

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