A former boss used sailing analogies to describe the mortgage market, saying things like, "A rising tide floats all boats." With refinance loans falling and demand far exceeding supply, it's hard not to look like an industry captain. Whether it is government subsidized programs, wide margins or vehicles to invest capital for large returns, there is certainly a rising tide.
With the wind in our sails, the feelings of euphoria have made us do things we probably never would have under different circumstances. Maybe we paid more for capacity than we typically would. Maybe we created more fixed-cost infrastructure. Maybe we did these things because we could afford to, not because they are strategic.
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Recently, David Stevens, president of the Mortgage Bankers Association, shared a compelling and startling look at what the future could have in store for mortgage lenders. While Stevens was careful to say it is not inevitable, he described a world where margins shrink, demand subsides and lenders compete on acquisition cost and point-of-sale access to purchase money business with a large scale downsizing of refinance activity. He challenged the industry to be prepared and ready for choppy waters and uncharted seas.
I am continually reminded that "a poor sailor blames the wind." Although the journey may take longer, a good sailor never lets flat sails determine his destiny. Similarly, the credit union mortgage lending industry should not allow choppy waters to affect its business approach.
In a downsizing market, fixed costs can be your biggest challenge. There are several banking processes that cannot be made variable, but management should be innovative when considering all options. Outsourcing is a key component to variable cost fulfillment support and can improve quality. Market shifts are an opportune time to consider what differentiates your operations. Determine what costs you carry that do not add value to the member experience. Most industry leaders will agree that core functions include remaining in control of the point-of-sale, price and fees and oversight/participation through closing. Has your credit union recently hired full-time employees, paying a premium for their expertise? Can their knowledge be shared within the credit union or could these functions be outsourced to a domestic, variable-cost provider.
Success equals diversification. This means earning more of your member's business with every touch point and service opportunity. As an industry, we have enjoyed historically large margins and a huge demand for refinance transactions. When times change, velocity and margins are both affected. To remain relevant and profitable, credit unions need to consider the following:
- Tailor variable sales comps toward new purchase business and new members who use the Internet for credit union access.
- Focus internal campaigns on leveraging the mortgage opportunity to determine if members need additional products. Provide incentives to cross-sell additional service opportunities.
- If you do not currently support external loan officers, launch that delivery model. Loan officers are key to developing referral business. Credit unions are positioned to attract talented originators because of the complexity of independent state licensing. Although originators need to be registered as mortgage loan officers who work for a credit union, being employed by a depository institution relieves the individual's financial burden of becoming licensed.
Leverage your brand and good will. Credit unions have been the recipient of the market's flight to quality, meaning their high standards in member services have allowed them to gain market share once held by large less personal banks. However, to capitalize on this opportunity, credit unions must bring their mortgage capabilities to the member's attention, both online as well as in branches. Remember that informing consumers of mortgage capabilities via the Internet is very different than in the branch lobby. Knowing that, credit unions should establish a marketing plan for both segments, encourage branch personnel and loan officers to be brand advocates outside the credit union, and host lunch and learn events at local real estate companies so they can get to know you and value your commitment to member satisfaction and their financial needs.
Like old salts will tell you, Poseidon, the Greek god of the sea, can be as violent as he is gentle, but preparation is the key to surviving. There are many resources that can help credit union management determine a plan for the changing winds. If you have a relationship with a credit union service organization, trade association and state league, they can often provide guidance. Talk to other credit unions and ask about their future plans and their approach to a more challenging environment.
Joe Camerieri is vice president of sales at LenderLive Network.
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