"Even Credit Unions with $2 billion in assets still don't create the level of scale that most of their competitors, such as mortgage bankers and regional and local banks have," said Jim McCourt, executive vice president of CDC and a former senior vice president of CUNA Mutual. "Members are no different than the general public; they make buying decisions about all financial products, especially large ticket items like mortgage and real estate products and services based on what is in their best interests."

"Larger lenders have a competitive advantage based on price, speed and ease of use, because of the rapid infusion of technology in product delivery and fulfillment systems. When dealing with a commodity such as a first mortgage, unless credit unions have the same competitive advantages, the industry as a whole will never be a primary source for member home financing," noted Mackwood.

Despite the general downward spiral of the home lending business these days, Mackwood said the "business level out there is sustainable. People somewhere are still buying homes; people have to move. That's why we've carefully chosen the areas in which we've selected and accepted our business partners. Boston, Philadelphia and the District of Columbia are all areas where there is still population growth, as opposed to my home state of Michigan, where population growth is stagnant." Mackwood said that people may want to sell their homes in other regions but aren't doing so because they don't want to accept the 15% drop in value. "There's no 'hot' area right now, but many others are holding their own," he added. "California is struggling significantly, so we're careful about the partnerships we're developing. Credit unions are now realizing the opportunity because borrowers have been jaded. They don't trust their lenders, but there is a great deal of trust in credit unions."

Industry sources like ACUMA have noted that while there have been record setting levels of home sales and financing over the past decade, the share of credit union business in mortgage lending has remained stale at about 2-3% of all mortgages closed. "The mortgage relationship results in greater accounts per household as well as significantly higher average deposit and loan balances," said Davis. "First mortgages should be treated as a core product by credit unions as they can drive value to the member and profitability to the credit union."

"We've long had a robust mortgage-lending program, but CDC will significantly expand our presence in this retail market," said Fred Healey, president and CEO of Workers' Credit Union. "Through this collaborative credit union model, we can now offer a broader scope of products with expedited origination and servicing with the goal of lower costs to our members."

Scale & Breathing Room

"All credit unions that are experiencing anything short of spectacular in their core product delivery systems–and that would be most of the industry–should consider an involvement with CDC," said Adrian "Casey" Duplianter, president and CEO of 1st Advantage Credit Union. "The mortgage business is scale-driven and we can't develop the volume we need on our own. I feel strongly that partnering with other credit unions that we'd get the scale and the pricing we need to eventually service all our own loans. That's the major reason I went with CDC."

Duplianter said that 1st Advantage had been highly dependent on the military and government jobs, a sector that hasn't seen much change of late, but has since converted to a community charter. The CU's membership is some 60,000, but there are over one-half-million potential members in the community. The CU still serves the former military posts and has members dispersed all over the world.

The CU partners also have a bit of breathing room to grow, he said. "Our other partner in Virginia (CommonWealth One) shares similarities with us, but we're in the southern part of the state. And while we are in the top 10 of credit unions under $500 million with our $40-$45 million portfolio of first mortgages this year, this is the right time to be doing this. Even if production volume isn't what it could be due to the nature of the business right now, maybe we'll make up for that with increased marketing and through sharing expenses." His one-year target is to grow the portfolio by 10% or greater.

Duplianter also wants other, smaller CUs to actively get into the business. "They can piggyback off us larger ones to let them offer products they cannot right now and that will help them to survive. I sure hope we've dealt with that 'They're out to snag my members' thing from our shared branching experience."

Another advantage he sees for all potential CDC partners is the transparent branding and the retained servicing of mortgages. "The servicing will come with our brand on it. Our members won't be seeing 'Sold to SunTrust' or anything like that. That's the biggest benefit, that the members' trusted advisor, the credit union, is keeping their loans and not letting them slip away." Duplianter said he's hired two mortgage originators (one inside and one outside) that will work based on incentives. "We didn't have that before." Mortgagebot will supply the origination software.

"This isn't your typical CUSO model where a few geographically close knit credit unions will be able to collaborate and the rest will be shut out as mere affiliates," said Michael Kaczenski, president and CEO of Sun East Federal Credit Union. "CDC has room for credit unions of all sizes and locations and that will create a true national CUSO, not as an afterthought but as the foundation for the organization."

"The big banks do a cost/benefit analysis to determine what products and services to offer (like car companies deciding to include air bags) and if the costs outweigh the benefits they don't do it. We can afford to take a longer view because as credit unions, it's not just about making a profit," said Mackwood. "We don't worry as much about the next quarter's profits because we don't have shareholders to answer to. We have members, and if they are pleased with our services and can save some money, they will support the CU system and remain loyal. But we have to do business in a businesslike way, too. We have to cover the costs and turn a profit to expand the business."

Providing those services in a thoroughly professional manner can be a challenge, he allowed, and a big stumbling block is the lack of stature that mortgage lending has in the CU industry over all. "Members do trust us. They just don't see credit unions as being as knowledgeable about mortgage lending. Now, we can correct that false impression by creating entities like those of the best mortgage brokers and bankers. When that's combined with CU advocacy, it's a powerful formula for success."

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