Credit Unions Work to Make Mortgages

North Carolina residents are likely to be aware of State Employees’ Credit Union before they start shopping for a home. If they are a newcomer seeking advice from a friend or a real estate agent, SECU is likely to be mentioned.

SECU, with $40.3 billion in assets and 2.4 million members as of March 31, is the largest originator of residential mortgages in the state, followed by Quicken Loans and then Wells Fargo.

And while residential mortgage originations fell for many credit unions and banks this year, they’ve been rising at SECU.

So it might seem that Mark Coburn, SVP of lending development at SECU, should have a job with all the stress of a Maytag repairman.

But Coburn hasn’t had a chance to get bored. His credit union is launching a project to retool its online presence to provide quick loan decisions around the clock, and shorten closing times within a year.

Why the urgency? The online capabilities of its largest competitors represent the biggest threat to SECU’s mortgage business.

SECU’s goal over the next year is to reduce that vulnerability by creating an online system to match or beat online lenders’ decision time and process simplicity. It also wants to reduce its average closing time to under 30 days. It’s now about 40 days.

“We are working diligently to improve our online presence,” Coburn said. “The improved online solution will be fully automated including quick online decisioning any time, from any location, on any device. However, we will always have experienced lenders available to assist members whenever they need help regardless of the delivery channel chosen by the member.”

Consumers are looking for ways to obtain services with the least disruption to their daily routines, and lending is no exception, Coburn said.

“Mortgage applications can now be done from the comfort of home, while on a break from work, traveling, etc.,” Coburn said. “While this initial process can be very quick, the full loan process for some lenders can still be lengthy and more complex than obtaining a loan from the credit union.”

Alix Patterson, chief experience officer for Callahan & Associates, a credit union consulting company in Washington, D.C., said those concerns are leading many credit unions to commit the time and money to improve their mortgage origination processes online and in their branches.

The time is right, Patterson said. Credit unions have enjoyed record earnings in the last few years, and can now realize that to serve members they must plow those earnings back into their people and technologies to keep up with the deep pockets of big banks and online competitors.

Those competitors are “putting pressure on everybody to raise their game,” she said.

Mortgages are one of the areas where credit unions lag at their peril.

Credit unions had been gaining share in the first mortgage market since the Great Recession, and had a nearly 9% share of U.S. originations by the first quarter of 2018. But as the market weakened overall in the past year, credit unions fell further behind, with their share falling to about 8% by this year’s first quarter.

Credit unions typically compete on rates, but the competition has created a “myth of experience” that consumers now expect all lenders to provide, Patterson said.

“Quicken is saying they can originate a mortgage in six minutes. It doesn’t actually work like that, but they’ve done a really good job of marketing that that is what they’re doing,” Patterson said. “One of the things keeping CEOs and lenders up at night is the experience. Credit unions are going to have to get real competitive in the same way.”

Credit unions’ greatest vulnerability is their struggle to keep up with members’ growing expectations for self-service capabilities, “specifically a robust digital experience with a personal touch,” said Rich Miller, vice president of mortgage originations for Suncoast Credit Union of Tampa, Fla. ($9.9 billion in assets, 826,311 members).

“Credit unions have typically been slower to adapt to an ever-growing demand for ease, simplification and the conveniences associated with a scalable technology mortgage solution,” Miller said.

High costs are one reason. Credit unions can’t afford to be on the vanguard of technology. “Sometimes, prudence means being a follower instead of a pioneer,” he said. “Provided you don’t allow your systems to fall so far behind, you wake up driving a 1975 Ford Pinto trying to keep pace with a 2019 Corvette.”

However, costs are becoming less of a barrier, according to Lorraine Stewart, vice president of mortgage lending for the Seattle, Wash.-based BECU ($20.5 billion in assets, 1.2 million members).

“The type of technology that a lot of online lenders use is becoming much more accessible to everyday lenders, including credit unions,” Stewart said.

BECU is well along the way on its own digital roadmap, allowing online applications and paperless processing.

“We have things that are comparable,” she said. “We have a good online presence for our mortgage group, and we’re always working to make it better.”

BECU and SECU share the advantage of being big credit unions concentrated in one state.

One reason SECU has increased its mortgage originations this year is that it launched a campaign last fall that targets members who might be in the market for a home and offers them a pre-approval with SECU. To date, this campaign has added approximately $172 million to SECU’s loan portfolio.

Fancy analytics can help narrow the targets, but it’s helpful to have 2.4 million members to choose from. “We have an opportunity to reach out to members who need a mortgage,” Coburn said.

The fact that SECU’s members are concentrated in one state is a contrast to most other credit unions. Even No. 1, Navy Federal of Vienna, Va. ($103.1 billion in assets, 8.4 million members), has its branches spread across 32 states with its greatest concentrations being 20% in its home state and 15% in California.

Just across the line in South Carolina, credit unions have a smaller presence and scant name recognition. Based on branch distribution, Navy Federal was the state’s largest credit union with a 15% share of credit union assets at the end of 2018, followed by Founders Federal Credit Union of Lancaster, S.C. ($2.5 billion in assets, 219,484 members) with a 13% share and South Carolina Federal Credit Union of North Charleston ($1.9 billion in assets, 162,549 members) with a 10% share.

Founders had its start as the employee credit union for Springs Industries, one of the nation’s largest manufacturers of sheets and other textiles, until it imploded about 15 years ago along with most of the rest of the U.S. textile industry.

Founders’ roots gave it a broad footprint in the South Carolina Piedmont. Now it is expanding to gain more of a statewide presence by cultivating ties to the state’s two major (and rival) universities: Clemson University in the Piedmont area and the University of South Carolina in the capital city of Columbia at the state’s center.

Founders COO Geri Rucker said the credit union has also changed its posture toward real estate agents. In past years, it tried to keep a distance. Now it sometimes hosts events to raise visibility and make them aware of Founders’ mortgage products, such as a recent promotion offering mortgages with no closing costs.

“When you advertise no closing costs, that’s going to bring eyes to your product,” Rucker said.

Alliant Credit Union of Chicago, Ill. ($11.6 billion in assets, 452,560 members) is competing directly with online lenders by seeking to become a primarily online credit union with just two branches in Chicago.

Alliant’s members live coast to coast, which makes some sense in that it began as a credit union for United Airline employees who were as dispersed as its routes. Its biggest concentration of members is in California, followed by Illinois and Colorado.

Alliant’s loan originations are about $1.5 billion per year, about $400 million from retail and the rest funded through correspondent lending deals. Purchases accounted for about 68% of Alliant’s residential first mortgages for January through May, while refinances accounted for the remaining 32%.

Mark O’Dell, Alliant’s manager of residential loan production, said the competition has forced lenders to improve, which can allow them to better weather dips in the market.

“Just because the pie is smaller doesn’t mean you can’t be successful,” O’Dell said.