Credit Unions Up Their Mortgage Game

As the refinance market dries up, credit unions are having to work harder to generate new mortgages.

Credit unions are having to boost their operations by retooling, changing the way they operate, raising expectations, adding more people and – at least in the case of a Florida credit union – dangling a snake in front of viewers in a television ad.

The ad by Community First Credit Union of Florida hasn’t drawn quite the millions of views generated by Quicken Loans’ Superbowl ads for its Rocket Mortgage subsidiary, but it shows how credit unions are getting out the message that they’re upping their game to win mortgages.

The Jacksonville credit union ($1.6 billion in assets, 128,024 members) launched a 15-second video in June on YouTube to draw members’ attention to its Mortgage Champions program. The big constrictor will also appear in selected cable slots.

The ad, shot in Atlanta, has two young men looking at the floor while standing on a table holding nets. The snake, which turns out to be dangling from a chandelier above them, gets the viewers’ attention in time for one of the guys to mention the credit union’s name.

The narrator then delivers the message over the credit union’s logo and key text: “Get the best home-buying experience you’ll ever have with our new Mortgage Champions. Call our 24/7 mortgage hotline or visit our website.”

John Hirabayashi, president/CEO, said the idea for the Mortgage Champions program came two years ago as he realized the credit union could do better to provide more mortgages to members and needed to prepare for an inevitable refi drop off.

Community First refinances fell from 70% of first mortgages two years ago to 30% now. As one result, first lien originations fell 16.7% to $88.6 million in 2017, and 32.2% to $15.6 million in the first quarter.

As the market shifted from refinances to purchases, the credit union revamped its products, made the process easier, trained more of its employees to take applications in the branches, extended branch hours and hired a third-party call center to take calls on applications 24/7.

One of the goals of the process improvements was to allow loans to close within 30 days, a goal it shared with applicants through an infographic explaining the times expected for each step.

The results are beginning to show this spring with originations coming in higher than a year ago.

Rocket Mortgage might be the No. 1 lender in the area, but its share is probably just 7% to 9% of the market, Hirabayashi said.

“They’re not always the best rate,” he said. “No one has a clear position in Jacksonville.”

Community First’s experiences are not unusual. The nation’s 5,646 federally-insured credit unions generated $30.7 billion in first mortgages in the three months ending March 31, down 0.2% from 2017’s first quarter.

But the results were uneven. The 10 largest real estate loan originators increased production 6.6% to $7.6 billion, while originations by the 5,636 others fell 2.3% to $23.1 billion. The waning refinance market is responsible for most of the drop, but increased online competition is also taking a toll.

Quicken Loans, the nation’s largest mortgage originator, has morphed from being able to pick up the easy refinance deals to being a major contender on the purchase side too.

Quicken Loans generated $17 billion in first mortgages in the three months that ended March 31, about 4% more than in 2017’s first quarter, according to ATTOM Data Solutions, a Los Angeles-based real estate analytics company.

Quicken Loans’ first quarter purchase mortgages rose 22% to $4.2 billion, while refinances were flat at $12.8 billion.

The drying up of the refi market has been particularly vexing for Quicken Loans, which still depended on them for 75% of its dollar volume in the first quarter, down from 79% a year earlier.

Only five years ago, all of Rocket Mortgage’s loans were refinances. “They were a refi shop,” Bruce Dickinson, SVP of mortgage lending for First Tech Federal Credit Union of Mountain View, Calif., said.

While Rocket Mortgage is a “marketing machine” that depends on reaching high numbers of people through heavy advertising, credit unions like First Tech have to reach their smaller base of members more selectively and carefully.

All the while, the big online lenders have changed expectations. Borrowers want information that is clearer, processes that are simpler and closings that are sooner. “That all speaks to operating efficiency,” Dickinson said.

Most mortgages at First Tech ($11.8 billion in assets, 517,268 members) are held by members in Oregon, Washington and northern California. First Tech had $3.2 billion in total originations in 2017, about the same as the year before. This year the Silicon Valley credit union expects originations to fall to $2.5 billion to $2.7 billion, reflecting the decline in refinancing.

Credit unions have far less dependence on refinancing than Quicken Loans, but they are still struggling to make up for their loss with greater purchase loans.

State Employees’ Credit Union of Raleigh, N.C. ($38.4 billion in assets, 2.3 million members), has seen some erosion of market share, partly due to Quicken Loans.

“For a lot of people, it’s the convenience factor, and their advertisement of an eight-minute decision,” Stacie Walker, SECU’s SVP of loan origination services, said. “A lot of it has to do with their marketing. With a new generation entering the mortgage market, it’s about how quick they can get something done. The relationship of going into the branch is not as important.”

SECU has decreased its 15-year, fixed rate mortgage by 25 basis points. A 15-year loan saves members thousands of dollars in interest and builds equity faster. Still, many of SECU members are focused on minimizing their monthly payments so they shop for 30-year fixed rate mortgages, where interest rate competition is keen.

In April, SECU brought back a 20-year fixed-rate mortgage. SECU doesn’t charge private mortgage insurance on any of its loans, which can save $100 a month on a typical payment. With that savings, members’ payments for its 20-year mortgage aren’t much greater than those of competitors on a 30-year mortgage.

“A lot of our members were going toward a 30-year fixed, and it was providing an option for our membership that would allow them to lock in a low fixed rate for a longer term than 10 or 15 years,” she said.

At Alliant Credit Union of Chicago ($10.3 billion in assets, 391,433 members), refinancing now accounts for about 40% of first-lien originations, down from 65% a year ago. “It’s a huge shift,” Jerry Anderson, Alliant’s vice president of residential lending, said.

In addition to its six loan officers based in the Chicago area, this year it hired four commission-compensated loan officers for its other big markets: Two in northern California, one in Los Angeles and one in Denver. Their job will be to gain more contacts among area real estate agents, builders and others to draw more mortgages to Alliant.

“Being in Chicago and not having feet on the ground, we really didn’t have established relationships in those areas,” he said, adding that with refinancing down, “there’s going to be less opportunity to capture existing loans from members. We’re going to have to be able to identify when they’re moving, and really get engaged on that purchase side.”

BECU of Seattle ($18.6 billion in assets, 1.1 million members) expects to have $1.4 billion in first mortgage originations this year, down from $1.6 billion in 2017.

“We knew we were going to see a drop in refis and an increase in purchase loans, and that’s exactly how it’s played out,” Lorraine Stewart, BECU’s vice president of mortgage lending, said.

Responses by the nation’s fourth-largest credit union include opening an office dedicated to mortgages in Spokane, Wash., retooling its website and doubling down on efforts to help lower-income first-time buyers who have the greatest hurdles to home ownership in one of the nation’s most affluent regions and hottest housing markets.

BECU’s First-Time Home Buyer Grant Program provides a down payment of up to 2% of the purchase price (up to $6,500), with the borrowers paying at least 1%. The credit union has closed 38 of the loans, distributing $199,000 for down payments, since the program began early this year.

Website improvements included adding a tool that allows shoppers to view homes across the area, narrowing by price, locations, features and other factors. Similar online services are available on outside sites, like Zillow, but BECU has forged a deal allowing it to connect to the Multiple Listing Service, the tool used by realtors. “We just want to meet our members’ needs in one place,” Stewart said.