How Some Credit Unions Are Breaking 2020’s Origination Records

The mortgage boom of 2020 has continued into this year. While the share of originations among credit unions has fallen slightly from early 2020, growth has been surprisingly strong.

CU Times interviewed four executives among the Top 10 credit union mortgage originators and found a variety of strategies they have used to help more homeowners with refinances and purchases

Last year the four credit unions originated $20.7 billion in first mortgages, double their production in 2019 and accounting for 7% of the $291.6 billion originated in 2020 by all credit unions. This year they are maintaining momentum:

• PenFed Credit Union of Tysons, Va. ($27.7 billion, 2.3 million members) was the nation’s second-largest originator of first mortgages in 2020 with $7.3 billion, up four-fold from 2019. In the first half of this year it originated $6.7 billion, up from $2.7 billion a year earlier.
• Lake Michigan Credit Union of Grand Rapids, Mich. ($10.4 billion in assets, 413,178 members) was third among credit unions last year with first mortgage originations of $6 billion, up 72% from 2019. In the first half of 2021, it originated $3.2 billion, up 17.4% from a year earlier.
• State Employees’ Credit Union of Raleigh, N.C. ($49.9 billion, 2.6 million members) ranked fourth with $4.5 billion in first mortgage originations last year, up 10.4%. First half originations rose 9.8% to $2.2 billion.
• Star One Credit Union of Sunnyvale, Calif. ($10.6 billion in assets, 114,914 members) was the ninth-largest credit union for first mortgages last year with originations of $3 billion, up from $1.1 billion in 2019. Originations in the first half of 2021 were $1.9 billion, up 93.1%. Growth in portfolio balances has been slower because of normal runoff and higher sales to the secondary market. Nationally, credit union sales of first mortgages to the secondary market almost doubled last year to $121.6 billion.

Lake Michigan Credit Union

Lake Michigan CU has gone from a credit union serving part of Michigan to one that also has a growing footprint in southwest Florida, which started in 2015 with four branches, augmented in 2018 with one bank purchase and to be expanded more with a second bank buy that is expected to close by year’s end.

While Florida has been drawing retirees from the north for more than 50 years, Eric Burgoon, chief lending officer at Lake Michigan CU, said the state is now drawing younger residents who can move there because the COVID-19 pandemic has allowed more people to work from home.

“We’re seeing a lot of movement to Florida,” Burgoon said. “There’s a huge influx of people from the Midwest, the Northeast, even California. People are moving to Florida, which is driving a lot of that demand. We are pretty well established there.”

Florida now accounts for about 15% of Lake Michigan CU’s total mortgage production, and is almost entirely in the Naples and Fort Myers areas. After the Pilot Bank acquisition, Burgoon said he expects the credit union will be drawing about 25% to 30% of its mortgages from Florida within about three years.

But Burgoon said acquisitions have not been the main driver of Lake Michigan CU’s mortgage growth. Instead, he said it is based on a strategy of finding loan products where it can excel and loan officers to sell them.

Burgoon came to Lake Michigan in 2011 from banking. He handled mortgage lending in Michigan, Illinois and Indiana for LaSalle Bank of Chicago for two years before Bank of America of Charlotte, N.C., bought it for $21 billion in October 2007, just in time for the Great Recession, which officially began two months later. “Coming out of the crisis in 2009 there was a lot of contraction in the industry. Our CEO, Sandy Jelinski, she really saw the opportunity with mortgage,” Burgoon said.

On the product side, Burgoon said construction loans have been a major asset because mortgage brokers can’t offer them and most banks don’t want to. They’ve more than tripled this year. On the workforce side, he attributes growth to the credit union’s pay structure.

Lake Michigan CU has 110 loan officers. Twelve of them are in the consumer-direct area, and the rest are outside originators who work on 100% commission – about 80 in Michigan and 15 in southwest Florida. “They can make a lot of money,” Burgoon said. “That’s one thing credit unions have to get over, or get comfortable with. You’re paying a loan officer who’s really good potentially several hundred thousand dollars.”

PenFed Credit Union

The most dramatic increases in mortgage volume in the last two years came from PenFed. Part of that has been due to a change in the source of its originations as correspondent lending becomes a larger part of the business.

Retail lending fell from 22% of originations in the first quarter to 15% in the second. Digital, or “Consumer Direct,” lending remained stable at 31%.

Correspondent lending was 47% in the first quarter and 51% in the second quarter, and is expected to grow more. TIAA Bank of Jacksonville, Fla., announced in June it was selling its correspondent lending platform to PenFed for an undisclosed amount.

Mark Garces, vice president of secondary marketing for PenFed Mortgage in San Antonio, Texas, said its existing correspondent lending is based on delegated underwriting, in which PenFed delegates to its corresponding credit unions the task of underwriting to PenFed’s prescribed requirements. After a review, PenFed originates the loan. This model tends to work best with large, experienced lenders.

With TIAA, PenFed acquired software and talented employees who handled non-delegated underwriting, in which PenFed does the underwriting. “We had the opportunity with TIAA to plug and play non-delegated underwriting into our correspondent business channel. That was the one piece that we were trying to grow out,” Garces said. “It takes time to grow organically.”

Non-delegated underwriting often appeals to smaller lenders that lack the organizational capacity to surging and ebbing origination demands. “It’s a nice way if you’re at capacity in your shop,” Garces said.

State Employees’ Credit Union

Some of the big changes that have occurred this year at SECU might seem familiar to other credit unions, including a sleek new online portal and social media marketing.

But some might be surprised that after years of absence, North Carolinians can now get a 30-year, fixed-rate mortgage at SECU. While a staple of American banks and credit unions, SECU took it out of its offerings in February 2009, offering 20 years as its longest term for fixed-rate mortgages. Even without it, the credit union was the state’s leading mortgage lender for years.

On May 8, SECU revived the 30-year fixed-rate mortgage, and as of August it was accounting for about 45% of its volume.

Mark Coburn, SECU’s SVP of lending development, said many high credit score members had been borrowing elsewhere to lock in record low interest rates. “With rates getting so low and staying so low, it became a business decision it was a time we really needed to meet that member demand so they could not have to go somewhere else,” Coburn said.

SECU has also built its digital channel. Until this year, mortgage applications could be filled out online, but the rest was manual. On Jan. 13, the credit union installed what Coburn described as “a robust, fully automated point-of-sale solution.” It is fully integrated, uses automated decisioning, can load documents and track

the loan’s progress. “All the bells and whistles.”

The online channel has grown from 15% of applications before January to 30% as of August, Coburn said.

Star One Credit Union

This credit union began in 1956 as Lockheed Missile Employees Federal Credit Union and served employees of the new Lockheed Missiles and Space Division in Sunnyvale.

In about 2006, Star One became a community credit union for Santa Clara County, which includes Sunnyvale and San Jose, the county seat about 13 miles east of its Sunnyvale headquarters. Last year, Star One expanded its area to include five adjoining counties.

Victoria L. Tabler, vice president of real estate lending, said members are expanding even further.

With the COVID-19 pandemic allowing more people to work from home, home prices in the San Francisco Bay area surpassing a median of $1 million and homes for sale at any price scarce, home buyers are extending the range of their searches.

“They’re buying a little bit further, and slightly more affordable rather than the immediate Silicon Valley,” Tabler said.

Some have bought homes in Sacramento – 120 miles northeast of San Jose. Some have bought even further away, and a few have bought homes outside California.