In the years following the mortgage crisis, many lenders – particularly credit unions – have had difficulty maintaining compliance, especially as regulations continue to change. For example, the TILA-RESPA Integrated Disclosure rules are adding severe pressures to community institutions.
The industry's hurdles will not only be in maintaining compliance, but also in keeping pace with member demands, as consumers are increasingly turning to credit unions for their home financing needs. In fact, Callahan & Associates recently reported that the credit union market share of first mortgages has quadrupled since 2006.
Larger institutions are fairly well-equipped to handle added compliance guidelines, but smaller community institutions will likely face complex issues in dealing with efficient compliance management within their organizations in 2015 and beyond. Hiring more staff members, however, is not always the answer.
To improve operations, reduce costs and free up resources to focus on their core business, credit unions must consider outsourcing. By leveraging technology and a dedicated team of experts, credit unions can seamlessly outsource, allowing for mortgage applications to be processed and loans to be underwritten and closed like cars on an assembly line.
This process should begin with the loan officer, who originates the loan package, and at which point credit reports and supporting documentation are obtained. Ideally, the credit union's partner would support the document review process by performing nightly checks of pending loan applications, and verifying documents for accuracy and compliance, the latter of which is a resource-intensive process that should certainly be outsourced. To further ensure operational efficiency, loan officers and other pertinent staff should be able to view a dashboard-style pre-closing review that verifies the existence of these documents, allowing for updates as documents are added or corrected upon review.
Another area that should be outsourced is the sending of the closing package to title companies and attorneys, transferring it to the Mortgage Electronic Registry Service, and finally sending it to the credit union shipper, who delivers the loan to a secondary market investor for selling and servicing.
Tyson Blackburn, vice president of lending for the $926 million, Purchase, N.Y.-based Quorum Federal Credit Union, stated, "As a national lender, we have to worry about federal and state regulations, and it is nearly impossible to stay on top of the latest requirements in all 50 states without overtaxing our staff or adding more resources. Outsourcing enables us to partner with industry experts who truly understand all of the different regulatory requirements and have relationships with the appraisers and closing agents, all while maintaining our scalability."
Blackburn continued, "We are 100% focused on serving our membership, and outsourcing enables us to direct the majority of our time and attention on improving the member experience."
Quorum FCU began outsourcing its titles and appraisals in 2014, and recently expanded to include back-office functions such as underwriting, closings and post-closings.
For credit unions such as Quorum FCU, outsourcing provides an opportunity to expand without investing in additional resources. In some cases, outsourcing allows credit unions to close loans in as little as 15 days, which is hugely beneficial to their member satisfaction ratings. Furthermore, outsourcing provides significant cost savings. The average cost of originating a typical loan continues to rise and recently hit $5,238 per loan. Reducing these production costs means lower fees – an area in which credit unions have historically prided themselves.
Mortgage lending is quickly becoming an area of tremendous growth for credit unions – even community credit unions. According to Callahan, some credit unions with $100 million to $250 million in assets have seen an increase as high as 97.6%, while credit unions with assets totaling less than $20 million have grown their loan portfolios by as much as 104.7%.
But in light of new regulatory guidelines, this growing market is being challenged. By partnering with a knowledgeable mortgage team and leveraging modern technology, credit unions can not only continue lending, but do so cost-effectively, compliantly and in a way that improves member service. Failure to do so may severely impact a credit union's growing mortgage business.
Paul Imura is chief marketing officer and senior executive for ISGN. He can be reached at 919-630-1177 or [email protected].
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