The Mortgage Bankers Association forecast for mortgage lending in 2016 is about $1.4 trillion in loans, which consists of about $900 billion in purchase originations and $500 billion in refinance originations. Of this total, credit unions have about 5% market share of new first mortgage originations, according to the MBA. Credit unions have many opportunities to increase their mortgage lending and take share away from banks.
The business of mortgage banking has changed in many significant ways as banks have shied away from loans that they perceive as risky. Credit unions have a fundamental advantage over banks in that they can weigh a member's overall situation carefully and assist members that are good credit risks. The geographic focus of a credit union means the credit union has a very good understanding of its unique market area and customer needs.
Credit union lending personnel should visit Realtors and builders to promote the benefits of credit union membership and how it helps member borrowers. They should bring case studies of how the credit union helped a variety of members buy a home when banks turned them down. Good examples include a self-employed borrower, a potential buyer that wants to buy a non-warrantable condo, a buyer who needs a "jumbo" loan to 80%, or a new physician just starting to practice medicine who needs "common sense" underwriting.
Point out the credit union advantage of offering portfolio loans, jumbo loans, no mortgage insurance loans and other products to qualified member borrowers. Some credit unions are offering "piggy-back" first and second mortgage combinations to qualified and credit worthy buyers. Credit union management and credit union lending officers often underappreciate the credit union's ability to grant a loan to a member when an inflexible bank will not do so.
If a credit union is not fully ready to compete in mortgage lending, it still has strong opportunities. It can become a very effective competitor by optimizing its back-office processes to provide superior member services. Bank turnaround times often run 45 to 60 days, while a credit union can make decisions more quickly, especially for portfolio loans. It can also reduce loan processing time by streamlining loan workflow, and it can use existing member data to reduce the document demands on its members.
Another factor to consider is that many bank lenders are frustrated with the impersonal approach taken by banks toward customers. A credit union should consider recruiting loan officers and operations personnel from banks. Many bank employees are frustrated and fed up with bank bureaucracy, especially at larger banks. Recruit high quality, but frustrated talent to your team. Loan officers often bring good Realtor and builder relationships to the credit union. Banks have been dealing with bank regulators for many years and compliance knowledge is very high among these employees, so a credit union benefits by bringing this talent on board. These former bank employees will respond well to a credit union's culture of compliance without the multiple layers of bureaucracy imposed by banks fearful of regulator criticism.
Finally, if the credit union is not a direct lender with Freddie Mac or Fannie Mae, now is an excellent time to consider becoming a seller/servicer. Credit unions are valued counterparties to Freddie Mac and Fannie Mae. If a credit union is not already a direct seller to the GSEs, there has not been a better time to become one. Add "direct to GSE" to the credit union's existing product mix, and the combination can be unbeatable. The credit union can retain the servicing to ensure excellent member care.
The mortgage transaction is a perfect introduction to the member benefits at a credit union. Credit unions can substantially expand both mortgage market share and membership by pursuing a strong residential lending strategy – now!
James M. Deitch is CEO of Teraverde. He can be reached at 717-327-4083 or [email protected].
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