Unlocking the Potential: Exploring Credit Unions’ Impact in Modern Lending

Over the last 12 months, residential lending has faced its fair share of woes on the balance sheet compared to the record-setting years in the industry between 2020 and 2021. However, that blip on the radar, in comparison to “normal” market years, is still a topic that lenders reminisce about today. I liken that period to the antithesis of September 2007, the start of the Great Recession. For industry insiders who have been in the business since 2006, it’s what the “war stories” of the mortgage industry are made of when sharing those highs and lows.

The current period of higher interest rates feels much different since it happened within such a short window. It also feels different because we don’t have the predictable market downturn in housing occurring simultaneously. In fact, home values continue to increase while supply remains meager. Among the mortgage leaders I connect with during the year, I hear similar stories: They have large pipelines of pre-approvals, but their members aren’t able to win offers for months on end. Some have been pre-approved for years while actively shopping. Just the other week, a first-time homebuyer in West Michigan was competing with 46 offers. Simply put, it’s not a healthy housing market and hasn’t been for quite some time.

The immediate ramp-up of interest rates pushing to 30-year highs has affected home affordability in a major way. Credit has tightened due to elevated debt ratios, and borrowers are holding on to funds after closing. This ultimately increases loan amounts, which also has a negative effect on affordability. The entire landscape of residential lending has changed. Direct lenders and IMBs have updated business models to veer away from refinance-heavy plans. This has brought on new pains of marketing efforts like credit triggers, which are the new annoyance of the industry and consumers alike. These credit triggers are sold by the credit repositories repeatedly, leading to a bombardment of calls directed at the consumer. Regional banks have exited entire sections of the business, including correspondent lending. This channel used to be a big driver of returns for regional banks but has since eaten away at their balance sheets. Then, you have the big banks that have backed off portfolio lending to mitigate any liquidity concerns. Big banks have typically viewed mortgage lending as a necessary component of their business but would rather see slow and steady gains within other channels to comfort shareholders rather than running into a 2007 period and reeling from negative year-over-year numbers.

After all, there is a smaller pie of mortgage volume, and every lender is trying to take the same size piece. Attrition within the mortgage industry has seen a sizable part of the workforce move on to other outlets, retire, or exit the space altogether. However, projections of interest rates by the MBA, Freddie Mac, and industry associations are optimistic through the end of 2023 and going into 2024. One significant factor will be a likely recession and recovery. In the meantime, credit unions have their field of membership to protect and will likely succeed by fulfilling the vision of their charter.

With all of that on the table, there is one constant in mortgage lending today: Credit unions. Credit unions are built differently with their mission to exist through serving the membership. Over the last 10 years, the largest credit unions have absolutely led the way in the development of new business in the mortgage industry. During that period, there has been a lot of innovation that has produced personalized experiences for members, improved operational efficiencies and created effective new technology that has led to seamless member service experiences. Looking at current technology trends and fully built-out loan manufacturing departments, mortgage servicing books have grown by billions, creating some of the largest servicers in this space with plans to grow even further. Credit unions can also benefit from mortgage-focused point-of-sale and CRM applications that give mortgage advisors the ability to manage large pipelines of member loans while automating personalized communication throughout the loan journey and beyond.

Efficient capital markets that track margin and profitability to loan costs are essential. Vetting new hedging tech and services gives credit unions a big advantage by allowing them to create highly effective secondary marketing teams. My organization has implemented many projects over the last several months with high-trust team meetings geared toward continuous improvement.

Now is truly the time to lean in and evaluate all aspects of your lending business to prepare for the next bull run of mortgage originations when interest rates recede. With our current period of higher interest rates, innovation must lead the way in determining the continued success of the credit union space.

Andrew Clarkson is Vice President, National Mortgage Production for the $3.9 billion, St. Joseph, Mich.-based United Federal Credit Union.