Finding Credit Union Growth in Mortgage Lending

Growth is a primary objective of any business, including credit unions.

Growth is a prerequisite for better service because it provides the resources that allow the institution to innovate and improve. It also prevents or hinders competitors from taking market share that could result in reduced membership and fewer resources to spend on products and services.

Companies that don’t grow will become less prominent in their markets and may find it difficult to survive.

Credit union executives realize this and many are focused on growing their membership. Unfortunately, in today’s environment that is becoming more difficult to accomplish.

The Need for a New Source of Growth

Recently, CUNA reported that credit union growth is slowing and pointed to a slowdown in auto lending as the reason. According to the Federal Reserve Bank of New York’s Center for Microeconomic Data, the application rate for new auto loans was 12% in June 2019, down 2% from June of the previous year.

According to its Household Debt and Credit Report for the first quarter of this year, “There were $139 billion in newly originated auto loans in the first quarter of 2019, a modest decline from the fourth quarter but higher than the volume observed in Q1 2018.”

It is also true that more dealers are using technology to earn customer loyalty and win repeat business. When existing customers return to the same dealership, those credit unions that already have good relationships in place will likely win that business again as well. That helps retain membership, but it doesn’t contribute to growth.

Auto lending remains a highly profitable business and modern technology makes it easy for credit unions that write these loans to expand their relationship with new members coming in from auto dealerships. But credit unions still need another engine for growth. Fortunately, they can attract new business easily by adding one additional product – the mortgage loan.

The Credit Union’s Engine for Growth

The mortgage loan application contains more information about a new member than any other document for any other product. It’s a roadmap that tells the credit union exactly where their new member is financially, and makes it easy to determine which additional products should be made available to them.

While there are many kinds of home mortgage loans the credit union can offer its members, perhaps one of the most straightforward is the home equity loan or home equity line of credit.

More akin to consumer loans than home loans, the home equity transaction is far simpler than the purchase money transaction, but it provides all of the data and insight into the member’s financial condition. Right now, this business is easy to win.

Currently, homeowners have access to a tremendous amount of equity in their homes and they would like to tap into it for their own use. According to Harvard’s Joint Center for Housing Studies, aggregate home equity more than doubled from $7 trillion in 2011 to $15.5 trillion in 2018. Today, homeowners have nearly as much home equity as they did prior to the housing crisis. The average homeowner gained $6,400 in home equity over the last year, CoreLogic reported.

According to CNBC, mortgage holders saw their home equity increase by 4.8% annually at the end of the second quarter of 2019.

In the past, borrowers could access their equity with cash-out refinances, but recently the FHA put additional limits on how much of their equity they could take out in this manner.

According to Fox Business, FHA-insured cash-out refinance transactions can now be made only up to 80% of the property value. This acceptable loan-to-value ratio has been dropping for some time. Back in 2008, FHA borrowers could buy a cash-out refinance for up to 95% of the property’s value.

Today, these borrowers will turn to home equity loans and that’s good news for credit unions that pursue this business. By marketing home equity products to local homeowners, credit unions have an important new source of membership growth.

There are additional benefits to mortgage lending beyond organic growth, primarily related to the vast amount of personal financial data the borrower will share with the credit union during the process. These include a deeper relationship with the member, especially when the credit union services the mortgage; more frequent reasons to contact and communicate with the member; and higher lifetime value in the member relationship. However, given the competition in today’s market, growth is a significant enough reason to take a closer look at the home finance lending business.

A natural extension from home equity lending business growth is to move into the home mortgage refinance business. There are currently eight million homeowners who could benefit from a refinance, CNBC reported, and that number will grow if investors drop rates in response to the Fed’s recent rate cut

Leveraging Lending Technology Is Key

The same marketing automation technology many credit unions already rely on can easily find prospective mortgage business right within the credit union’s existing membership. Many new members who come in through the direct auto lending channel may need to tap into their existing home equity as well or could benefit from a mortgage refinance. With the right tools, they are easy to find.

Credit unions need to implement new lending technology in order to meet evolving consumer demands and expectations, increase the overall efficiency of the loan origination process and keep members engaged from application through to the closing table.

Loan origination technology, such as the Origence mortgage lending platform created specifically to meet the needs of today’s credit unions, offers a number of key benefits:

• A reimagined borrower experience from the point-of-sale all the way to closing, realized by streamlining and automating the entire lending journey. This makes it easy to grow organically by providing the same great experience the credit union always provides its members.
• A more efficient origination process, through intelligent use of automation focused on cycle time reduction and staff productivity. This allows the mortgage product to be a great engine for growth by attracting new members who want to access their home equity.
• An integrated lead management solution that keeps borrowers on track, increasing purchase close rate and throughput. This means that the credit union can acquire fewer technology solutions to meet its growth goals.

The technology available today has opened up new opportunities for credit union profitability by replacing manual steps in the origination process with an automated enterprise solution. This makes home finance a fundamental – if not essential – product to add to a credit union’s offerings menu, making growth an achievable objective.

Roger Hull is Chief Product Officer for CU Direct in Irvine, Calif.