It happened. It took a bit longer than expected, but it happened. After 30 years of declining long-term interest rates in the United States, credit union executives may have witnessed the "bounce off the bottom" in the past few months.
Credit union mortgage shops that were shaking their walls with refinance production saw volumes nearly cut in half this past summer. The Mortgage Bankers Association recently forecast that refinance volumes will be down $585 billion in 2014 while mortgage purchase transactions will grow by only $85 billion. If credit unions follow industry trends, they will lose six loans from the tapering of refinancing for every one they gain on the purchase side of the business.
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For credit unions that have benefited from and become slightly dependent on mortgage revenue, 2014 will be a time to employ new strategies in the mortgage business. Importantly, credit union mortgage professionals can longer be the self-reliant, hard chargers that knocked out earnings for the organization.
Instead, lower market volumes and a shift to a purchase environment means that the mortgage department must collaborate more actively with other areas of the credit union. Creating mortgage volume in the future will require departments like marketing, information technology, finance and the retail branches to become more fully engaged in a growth plan.
From a strategic standpoint, credit unions have the opportunity to leverage both their current member base and their local market presence as key components of a growth strategy. While the credit union industry now exceeds more than $100 billion a year in mortgage production, executives still lament that only a small percentage of existing members use the credit union for mortgage services. As volumes get tighter, more concerted efforts need to be undertaken with marketing to communicate the message to members that the credit union is the fastest, fairest and most user-friendly mortgage provider available.
Mortgage departments have generated a great deal of revenue in recent years with an immaterial portion of the marketing budget. Building a strong brand with local realtors as the most responsive and consistent mortgage lender in town must be another key priority. The retail branches also need to communicate the credit union's home buying solutions more visually and powerfully through merchandising and cross sell efforts.
Leading credit unions have focused on building strong frontline knowledge of the mortgage product in their branches. Some institutions have positioned branch staff as true mortgage originators with SAFE Act-related licensing while others have built product knowledge adequate for effective referrals to the mortgage origination group. Either way, training and certification programs around real estate lending products and compliance should be a high priority with credit union retail and training groups.
As the mobile technology revolution continues to impact every industry, credit unions will also have to take a much more active approach to technology in the mortgage industry. The IT function needs to service as an active partner in helping the mortgage group develop strong online lending capabilities, reengineer processes to create a paperless mortgage process and mine member data to generate a stronger number of internal mortgage leads.
The IT and marketing departments should also be integral partners in helping the mortgage group develop strategies for optimizing web search leads and executing web and mobile marketing strategies. Players such as Quicken Loans have proven that engineering the mortgage experience to be more virtual and technology-driven can attract both the interest and loyalty of consumers. The next wave of Gen Y couples who marry and purchase their first home will be smart-phone equipped and demanding this type of product delivery.
Finally, as credit unions work to enhance the revenue and profitability of the mortgage business, building stronger sophistication in the mortgage secondary and servicing areas should be a joint priority with the credit union's finance team. Most credit unions do not have the production volume to justify a specialized mortgage secondary marketing executive, but leveraging skills in the finance area can be a cost effective way to move the credit union towards a model of mandatory commitments and hedging to enhance returns.
Large mortgage players have already started to execute massive layoffs in reaction to the shifting mortgage environment. There certainly will be plenty of road kill in mortgage lending over the next two years. However, credit unions should take a long term view and strive to stay relevant in this business for the benefit of their members. The path ahead towards success can no longer be about keeping one's head above water in a busy, independent mortgage shop. Instead, things must be more focused on collaborating with team members from across the organization to position the credit union as the most responsive and trusted source of home finance.
Steve Williams is principal at Cornerstone Advisers Inc. Contact 480-423-2030 or [email protected].
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