Credit Unions Underestimate Their Edge Against Other Mortgage Lenders

Credit unions, propelled by the strength of first mortgages, managed to surpass $1.2 trillion for their total loan portfolio for the first time in April. But while they are gaining market share in the mortgage lending space, most are likely still falling far below their potential in their battle against banks and depositories.

Credit unions, which make up a small percentage of the total mortgage volume in the U.S., often underestimate their ability to seize market share from large mortgage lending institutions. In reality, they have more fighting power than they think.

While credit unions thrive on the strength of their member service and relationships, they are often hampered by a lack of visibility into their own competitive position. With the right analytical tools and market intelligence, however, they can identify the specific drivers of their success and develop new strategies to expedite margin, share, risk and operational goals.

With timely mortgage peer benchmarking data, they can better manage their relative position by learning how they compare to the top mortgage lenders in the U.S., exerting more control over margins and loan volumes. Such insights are particularly critical as credit unions experience a margin squeeze.

Mortgage originations drove growth among the top 10 credit unions, increasing loan production in Q3 of last year by 16.5% from a year earlier. But the net interest margin for federally-insured credit unions showed its sharpest quarterly decline in a year, according to Q1 data released in June by the NCUA, down 25 basis points from December and 38 from a year ago.

That continued margin compression comes in the wake of a similar squeeze for banks this year, a tightening that is likely to render them more aggressive as competitors. Those dynamics, coupled with dated technology that can’t compete with the digital advancements of banks, mean credit unions can’t afford passive market strategies or to take any client segment for granted.

A New Window Into Lending Power

Credit unions have at their disposal a wealth of lender, pricing, market and operational data at the national and granular levels that can expose strategic strengths and weaknesses.

With those metrics, they can gauge relative lender performance by identifying product, risk and geographic segments driving share changes. They can assess pricing competitiveness by examining benchmarking rate sheet pricing and transactional rates. For operational execution, they can discover what is hindering and what is helping overall performance.

They can understand what products are being offered, and how those products break down by category, market share or consumer interest. They can learn, for instance, precisely how their breakdown of loans – across the owner-occupied, non-owner, second home and first-time home buyer categories – compares to those of their competitors. With zip code-level originations data, they can determine more precisely where loans are coming from.

Data could reveal whether they are securing more or fewer loans than the competition, while gauging their relative aggressiveness. They could determine whether they are too aggressive or over-extended when it comes to certain risk characteristics. They could also run scenarios to determine, for example, how much higher their loan-to-value (LTV) ratios are than those of the general market.

Additionally, weighted average FICO data can provide critical insights into market positions by credit score. Credit unions could learn more about their relative consumer credit risk by examining, for instance, the number of loans issued with scores lower than 640 or higher than 740, and how those numbers compare to the overall market. They could further assess financial health by comparing their debt-to-income ratios to their peers.

Data can also help them correct erroneous market assumptions that might be impeding growth – establishing that the LTV ratio, for example, of their competitors is actually much higher than they believed. They may learn a core strategy has actually been a long-time handicap.

Maximizing Performance; Boosting Competitive Position

With a comprehensive view of their position, credit unions gain a nuanced control over their trajectory, and can quickly adopt new strategies and expand access to market opportunities.

As smaller, membership-based organizations, credit unions are known for catering to the individual needs of their members and for the flexibility they can offer by holding their loans “in-house,” freeing them from regulatory rate restrictions. But only by assessing detailed market data can they truly reconcile the needs of that demographic with everything the market has to offer.

A first-time home buyer who can’t afford a large down payment might be sold on a lower rate, for example, but members who need to close a loan in 30 days may be lured by the faster turn times of competing lenders – and take their deposit business with them when they go.

Data can help determine how streamlined their operations are and whether a credit union should shift its focus to reducing the time it takes to fund a purchase loan or a cash-out refinancing for someone who needs money fast.

Ultimately, credit unions need to decide when and how often to say no to potential borrowers, and how to gauge the value of the exceptions they make for members. If they can’t meet the mortgage lending needs of their constituency, they risk compromising their identity and losing market relevance.

But with deep benchmarking data and analytics, they can isolate causes of underperformance and discover new opportunities. They can exert a nuanced control over their competitive position, boosting performance and generating more revenue – all while cultivating stronger relationships with their base.

Brandonn Dukes is Head of Real Estate & Consumer Lending Solutions at Curinos, subsidiary of the London-based Informa plc, integrating quantitative and qualitative data to deliver a complete view of the consumer and business banking sector.