WEST PALM BEACH, Fla. – The refi boom is over, now what? That's a question credit union mortgage experts agree credit unions need to be prepared to answer if they expect to be competitive in the emerging purchase mortgage market. "The purchase market is a radically different market from the refi market. Credit unions for the past two or three years have been able to sit back and watch the applications flow in. But in a purchase environment, you have to compete for members' mortgage dollars," says Navy FCU's Lou Jennings. "In a purchase environment the transaction is controlled by the real estate agent if it's an existing home or the construction company and their preferred lender if it's a new home," he continues. "So right out of the bat, you're competing with one arm tied behind you." During the refi boom, credit unions didn't have to pay close attention to the rates their competitors offered because every lenders' rates were low. But not so in a purchase market, says Jennings. "Credit unions have to be very cognizant of what's happening with rates because they'll be competing with mortgage brokers or bankers who will say they can cut their rate to match the credit unions. The purchase market is a lot more rate competitive," he says. Those are strong words coming from the executive vice president of the lending department of the credit union that has consistently ranked number one in mortgage originations and for who it may have seemed to some credit unions that capturing mortgages was effortless. Jennings admits "we've had the luxury the last three or four years of not having to do any mortgage advertising." In 2002, Navy FCU did $5.2 billion in first mortgages; in 2003 it booked $6.7 billion with another $1 billion in equity loans. Jennings has budgeted for $5 billion for 2004, based on the expected increase in rates the second half of the year. So far, since rates have remained low, he said the credit union is "far ahead of schedule." Even so, Navy isn't resting on its laurels, and it's decided to run an advertising campaign to promote its mortgage and equity products now that rates are anticipated will rise. In addition, the credit union has developed several new mortgage products since it last advertised its mortgage lending services – that was in the late 1990s – that many members may not know about. The ad campaign will run through the Winter 2004 and in various locations – branch offices – poster and teller signs and videoNet ads – online, indirect mail pieces and the CU's newsletter. Ads will also run in the Marine Corp Times and Navy Times in all major markets where NFCU is located and on-base military papers. Among Navy FCU's new mortgage products are a Veteran's Choice loan which Jennings describes as a "conventional VA lookalike program," that is it has the features of the VA loan but it allows the member to avoid a lot of the typical paperwork and "documentation bureaucracy" of VA loans. That means the loans can be processed faster and at a lower cost to the member. Navy also introduced a "no PMI mortgage" which lets members put as little as 3% down on a loan without being required to get private mortgage insurance. With 33% of the mortgage loans Navy makes going to members who earn less than the national median income, saving even half of 1% on an interest rate, which is what the PMI could add to a loan, is a big thing, says Jennings. "We need to remind our members that Navy FCU is in the business of making mortgage loans, and we want to make them aware of the new programs we're offering that fit many of their needs because they were designed with their needs in mind," says Jennings. Boosting members' awareness and confidence in credit union mortgage lending services seems to be a task that challenges many CUs. Despite the many years General Mills FCU, Minneapolis, Minn. has been in mortgage lending, for example, Vice President of Lending Mike Long says, "We still struggle with the idea many of our members have in their mind that credit unions don't know how to do mortgages. We have to work hard to change that and convince them that the mortgage experience they get with us is better than what they get with another lender." Long realizes that's a problem many credit unions are dealing with, especially now that the mortgage market has switched gears to a purchase market. It will take more than just low rates to capture members' mortgage dollars. In General Mills FCU's case, the credit union isn't just dealing with members' perceptions, but also those of its corporate and single sponsor – General Mills. The $180 million, 22,000 member credit union only serves General Mills employees and their family members. Forty percent of the members are based in the Twin Cities. The credit union also has a branch in Iowa and Illinois, and will soon open one in Missouri. In addition to the credit union, the corporate giant partners with Wells Fargo or Wachovia for relocation loans for its employees. Long says the company typically relocates about 600-800 people each year around 25-30 plants around the country. "This is a market we want. It's not uncommon for General Mills employees to move three to five times during their career with the company, so it will be a repeat business for us," says Long. He says the credit union is up against a good relationship General Mills corporate has with Wells Fargo and Wachovia, "but we've been greasing the wheel with them to get them to stop sending employees to the other lenders," he says. In 2000, the credit union originated $12 million in first mortgages; in 2001, it did $60 million; 2002, $85 million; and last year it originated $98.5 million. Long attributes the increase to a combination of the low mortgage rates everyone enjoyed as well as the redesigned program the credit union completed that involved partnering with Mortgagebot.com. That allowed the CU to put its applications online and get members pre-approved in a matter of seconds. About 70% of the mortgage loans General Mills FCU originated in 2003 came from refis, but Long said "we wouldn't have been able to make as many loans as we did if we hadn't retooled our mortgage process. Now about 95% of the loan applications we're getting are online." In 2001 only about 2% of the loans the credit union got were relocation loans, but now Long says relocation loans are accounting for about 35% of loan originations. The average size of a relocation loan is around $155,000. Long says the credit union treats its relationship with General Mills corporate as a "vendor relationship, someone we have to sell ourselves to. We're competing with Wells Fargo and they have instant name recognition." Ultimately, Long thinks General Mills corporate would like to work exclusively with the credit union for relocation loans, "but we need to show them we can handle all their business. Employees who are relocating have so much to deal with, so the last thing corporate wants is for an employee to have a bad relocation loan experience. We have to prove to them everyday that we can handle all their relocation loans." To that end, General Mills FCU is continuing to promote its relationship with Mortgagebot and enhance its Web site – it recently rebranded its online mortgage promotion from reading "mortgages made easy,' to `mortgages made easier.' In addition to allowing members to apply for loans and be pre-approved online, the CU is also offering information on moving companies and school districts. General Mills FCU also wants to put a link on the corporate's Web site that will tie the member back to the CU's Web site and give them access to an online mortgage application. The credit union plans to build a test site first "so corporate can get a feel of what it will look like," says Long, and hopes to have it launched by the third quarter 2004. The credit union is also starting up home buying seminars and has already done two in the corporate headquarters. It's planning on taking the seminars on the road and conducting them in some of the other General Mills plants. Midwest Financial CU, Ann Arbor, is finding the best way to its members mortgage dollars is through construction loans. The $155 million credit union has been partnering with an outside company, Construction Loan Company, since last November to capture these loans from its 15,000 members. The company works primarily with credit unions, and its Web site is linked to credit unions' sites so members can apply for construction loans online. Construction Loan Company originates and underwrites the loans, as well as sets the rates on the loans; Midwest services and funds them. As of November 2003, Midwest Financial also began offering vacant land loans. Tonya Coon, vice president of real estate said an increasing amount of Midwest Financial's mortgage activity in 2002 and 2003 was purchase activity, and she attributes that to the existing low rates. Taking refis out of the picture, from 2002 to 2003, the credit union's purchase volume increased 86%, from 70 purchases worth $11.8 million in 2002 to 129 purchases worth $422.5 million in 2003. Most of that was from first time homebuyers. Midwest Financial's field-of-membership is healthcare and its largest sponsor group is the University of Michigan Health Systems which include University of Michigan Hospital and Medical School. Coon said the credit union sees a lot of first time homebuyers in March-July from new medical residents just out of medical school who expect to be in the area for four to six years. Coon said a large portion of the credit union's new members learn about the CU by word-of-mouth from other members who got mortgages through the credit union. "I'm a firm believer that we could put marketing mortgage pieces in our monthly newsletter and it wouldn't do a thing. A lot of our members are very technologically savvy and use online banking. So we'll get more mileage from overhauling our Web site," she said, noting that she expects that project to be completed by the end of 2004. "We want it to be an educational site for our members," she said. That includes plans to hold home buying seminars for members and bring in realtors, home inspectors and representatives from credit reporting agencies. Coon said competing in the purchase mortgage market " comes down to service. My rate may be an eighth of a point lower than my competitor, but if you were happy with the service you got from us, then that's what will bring you back." Air Academy FCU's VP of Mortgage Banking Steve VanSickler would agree with that. But he said the ace in the $265 million CU's hand is the commissions it pays its loan officers and the way it treats these employees as " relationship sales people, not order takers." "Credit unions don't have true sales people working for them, they have order takers. Most credit unions are uncomfortable with the idea of their loan officers being relationship sales people. To have that, these people need to be able to work beyond the typical 9-5 workday. Our professional mortgage loan officers know every product from A to Z and can match the member to the product that's best for them," says VanSickler. "The order taker waits for business to come in, but out commissioned originators don't get paid unless they bring in the loans, so that's their incentive," he said. Air Academy has 40,000 members. The credit union uses traditional statement stuffers, lobby posters and expanded radio spots to promote its mortgage products and the credit union's image. Most of the credit union's purchase money production is brought in by word of mouth from the loan officers who go out in to the community and work with the realtors. Air Academy ended 2003 having originated $275 million in mortgages. In fact, for the past two years, it originated mortgage loans greater than its assets. "Credit unions are going to have to change the whole dynamic of how they've done mortgages if they want to compete in the purchase market," says VanSickler. "Moving from an order taker to a relationship sales mentality will be a difficult transition for most of them. They have to understand these originators are out and about during the workday, developing relationships. Their job isn't to wait for the member to come in, but to go out and find the mortgage transaction through realtors. Some credit unions may have an issue with this," he says. To compete in the purchase market, Navy FCU's Jennings says one of the keys to CUs' success will be having good homebuying counseling programs. He said credit unions have to be prepared to offer members upfront counseling and handholding. Be upfront with the member and honest with them on what kind and size of loan is most suitable for them and what they can qualify for. It's also important that credit unions have a pre-approval program. "More and more what sellers of homes are looking for are pre-approvals so when the member walks in they can tell the seller they have the loan. Even though pre-approved loans still need property appraisals, very few loans fall through because of the appraisal," Jennings says. Lastly, Jennings said credit unions have to promote the key factor they're known for – trust. "That's the big foot in the door with members. Credit unions shouldn't take that lightly," he says. [email protected]