Credit Unions Ride Refis Through 2019

Credit unions have been riding a wave of mortgage refinancing driven by falling interest rates, but the crest is approaching and by next spring they will be depending more heavily on home buyers.

The surprise refi boom came as the nation’s two largest credit unions were executing strategies to allow members to apply more easily online, which they consider crucial to remaining competitive whatever the economic environment.

The largest, Navy Federal Credit Union in Vienna, Va. ($106 billion in assets, 8.6 million members), produced $5.2 billion in first mortgages from April through June, up 19.3% from 2018’s second quarter. Its third-quarter volume rose 32%, on track with estimates for all U.S. lenders, but it expects growth to start slowing.

At State Employees’ Credit Union of Raleigh, N.C. ($40.6 billion in assets, 2.4 million members), first mortgages rose 10.3% to $984.3 million in the second quarter. Third-quarter volume rose 22%.

The latest NCUA data showed the nation’s 5,308 federally-insured credit unions originated $22.4 billion in fixed-rate first mortgages with terms over 15 years from April through June, 20.2% more than in 2018’s second quarter.

Meanwhile, shorter-term fixed and adjustable rate mortgages fell 4.7% to $18.6 billion, and second liens rose just 1.1% to $9.7 billion. Altogether, the first mortgages of credit unions represented about 8% of the U.S. total for all lenders tracked by the Mortgage Bankers Association of Washington, D.C.

The MBA estimated originations will grow 32.4% in the third quarter, with purchase originations rising 8.4% to $375 billion and refinancing spiking 107% to $146 billion.

In September, the MBA forecast for the fourth quarter was 98% growth for refinances, up from a 58% forecast a month earlier. Its purchase mortgage forecast was 5.2% for the fourth quarter, up from a 3.4% forecast in August.

But as 2019 has grown beyond expectations, the MBA’s expectations for 2020 have grown more slowly. As a result, the comparisons have worsened – in May, it was forecasting mortgage originations in 2020 would be about the same as in 2019, but by September it was forecasting an 11% drop for 2020.

SECU, the largest mortgage lender in North Carolina, originated $336 million in mortgages from July through September, up 22% from 2018’s third quarter. About 60% of SECU mortgages are for members buying homes, a rate that has been fairly consistent despite the refi boom. Among its refinances, about half come from existing members and half from new members, SVP of Lending Development Mark Coburn said.

About 28% of members have their mortgages through SECU, a percentage that has held steady in recent years despite increasing competition from big banks and sophisticated online lenders like Quicken Loans, and its Rocket Mortgage.

SECU is upping its online game, building a new platform to make it easier for members to use online tools during the mortgage process. The system, which is scheduled to be in place by next summer, will allow an easier flow of paperless documentation and shorten loan closure times. Loans now take about 40 to 42 days to close; the goal will be to close in 30 days or less.

“Banks charge people more in fees or interest rates for that convenience,” Coburn said. SECU’s goal is to keep costs down while improving its efficiency. “We pride ourselves on service,” he said, noting that members “want it simple and they want it convenient.”

Navy Federal originated $5.4 billion in first mortgages in the third quarter, up 32% from a year earlier. It had expected refinances would account for about 15% of originations; instead they accounted for about 25%.

The last refi boom was in mid-2016. With rising home values and principal payments, many members who took out a 30-year, fixed-rate mortgage three to five years ago were in a position to refinance when rates fell early this year, Randy Hopper, SVP of mortgage lending for Navy Federal, said.

“We didn’t anticipate interest rates dropping like they did in April and May,” he said. “A lot of refinances that started coming in in May and June as interest rates dropped started to close in August and September. And we’re still experiencing that in October.”

Hopper said typical refi booms last about a year. He expects the pace of refinancing to start to taper off in the middle of the first quarter and return to normal levels by June.

“Once 12 months go by, you start to see the volume tail off a little bit because there’s a little bit less of an economic benefit,” he said. “Most consumers who are interested in it have already taken advantage of the lower rates by then.”

As a result, he said he expects Navy Federal’s mortgage originations in the fourth quarter to have a 12-month growth rate more like the 20% growth of the second quarter than the 32% growth in the third quarter.

Of Navy Federal’s 32% growth for the third quarter, about 10 points came from organic member growth – which is to say U.S. market growth – and about eight to 10 points from the increase from direct mail and other marketing.

The remaining 14 points came from Navy Federal’s rollout in June of a new program called “HomeSquad” to enhance its online presence. The program has increased the share of members who have opted for a mortgage through Navy Federal, Hopper said.

“The real win with HomeSquad is it makes it easier for members to apply,” Hopper said. “Whether or not they’re near a branch, they can go online and fill it out in 30 minutes or less.”

The importance of having a first-class online service stems from Navy Federal’s unusually young and mobile membership base. Many of its members are active-duty military or recent veterans who often move across the country. They are in their prime home-buying years and belong to a generation with high expectations of online services.

And while its active-duty members tend to be in Washington, D.C., Northern Florida, Southern California and Texas, it has many members who have settled in population centers like New York, N.Y., Los Angeles, Calif., Chicago, Ill., and Boston, Mass., where Navy Federal has few branches.

Mounia Rdaouni, assistant vice president of mortgage operations, has been overseeing implementation of HomeSquad. She joined Navy Federal 12 years ago, and spent 10 years in member research, working with numbers to understand members’ wants and predict their behaviors.

In early 2018 she moved over to mortgage operations to implement HomeSquad, starting with “journey mapping” and interviewing members to understand their experiences with the existing online platform, spot their frustrations and fill gaps.

Navy Federal signed a contract with Blend to power its HomeSquad platform and turned on a pilot program in early February. After four months of testing, it went live to all members on June 15.

Within the first weeks, Rdaouni saw a dramatic increase in the completion rate for applications, an indication fewer members were quitting because of frustration with the program. The new platform can:

• Generate pre-approval letters on the spot;
• Provide “peace of mind” ability to track progress of loan applications anytime online;
• Give regular reminders of any additional documentation needed; and
• Provide a single place and easier method to upload documents, gather electronic signatures and link to other member accounts to for income verification and other loan requirements.

While the platform is full of technical improvements visible to members, some of the most important features are less obvious but require high levels of wizardry. For example, the system allows easy movement from working online to reaching out to touch someone. That’s a feature Navy Federal learned its members wanted: Sometimes they want to work anonymously online; sometimes they want a person to answer a question – right now.

“The reason we called the platform HomeSquad was we wanted to keep our people at the center of the experience,” she said. “It digitizes most of the parts of the process our members want to see digitized, but it’s also backed by a squad of trusted mortgage advisors and member service representatives who will jump on a call or email at a moment’s notice if that’s what the member wants. We’re more than happy to have them call us.”