Bloom in the Gloom [Credit Union Management]

Housing may be depressed, but CUs with the right strategies are cheering about their mortgage loan success.

High deposit levels-even before banks drove more money to credit unions by attempting debit card charges-and microscopic investment yields have CU managers intensifying their search for good loans. Low rates and depressed home prices are making mortgages one of the most rewarding assets, especially for CUs that can make loans they can structure to work well in their portfolios.

With the right products at the right prices supported by the right marketing, a CU can have a booming business in mortgages, as $680 millionCharter Oak Federal Credit Union (www.charteroak.org), Groton, Conn., can attest. In 2010, the CU's loan portfolio grew 4 percent to $488 million, with two hot products accounting for 87 percent of the mortgage fundings that year and for 76 percent of 2011 fundings as of November.

2010 was the first full year the products were actively promoted. The first, called Accelerator, is available at a low fixed rate with no closing costs for either eight or 12 years. At this writing an eight-year Accelerator loan was going for 3.45 percent, reported Debbie Snajczuk, AVP/mortgages.

The second loan product is called "Cost Saver," available for 15 or 30 years at competitive rates priced daily, again with no closing costs. At this writing, the "Cost Saver" had recently been priced as low as 3.625 percent.

"We did quite a bit of advertising when we rolled out these products," she says. "We used fliers and posters, outdoor signs, direct mail, frequent radio ads and ran in all the local newspapers. Loans went to both existing and new members. We did refinance some of our own loans, but the majority went to people refinancing loans from other financial institutions."

As a result, "Were the top mortgage lender within our field of membership," Snajczuk reports, "ahead of Wells Fargo and all the other banks and credit unions. That's unusual for a credit union."

The products can be tailored to the local market because Charter Oak FCU keeps them all in its portfolio, she reports. Because of their shorter terms, the eight- and 12-year mortgages carry less interest-rate risk. "We also use a complex ALM simulation model and net economic value to minimize interest-rate risk," she explains.

Ladder of Opportunity

Charter Oak FCU is special but hardly alone. CUs make two kinds of mortgage loans: purchase loans and refinancings. The low-hanging fruit would be refinancing existing members who have mortgage loans and are paying above-market rates. If they have enough equity in their homes, these members should be eligible to refinance, says Kim Shaul, SVP/ general manager of CMG Mortgage Insurance Company (www.cmgmi.com), San Francisco. (Parent company CUNA Mutual Group is a CUES Supplier member.)

Getting members to do so should bring the CU some fee income and, more significantly, cement the CU's reputation for looking after its members' well-being. She adds that 2011, with rates falling to historic lows, has been a good year for CU refinancings.

Harvesting purchase loans from existing members may require a step ladder, but it's something enterprising CUs are doing, Shaul reports. Crafting a marketing strategy to reach members who are not home owners and who have high deposit or investment balances, low debt and high credit scores is certainly feasible, she says. "Credit unions are well positioned to appeal to firsttime home-buyers or to homeowners who are ready to move up or down," she observes.

The greatest prize, nestled in high branches, may be attracting new members who come to get a purchase loan, Shaul suggests. "We see a number of credit unions working with local real estate agents to develop relationships so that those agents send prospective buyers to them instead of to banks or mortgage brokers," she reports.

CUs may have an advantage over banks in Realtors' eyes, because "credit unions are generally more community based and typically charge lower fees. Also, because decisions are made locally, they might be able to turn applications around faster. And since they know their markets and members better, they may also be more flexible than banks or mortgage brokers, making it easier for a member to get financing," she explains.

Beyond Refinancings

Helping qualified borrowers refinance their mortgages into lower-rate loans "performs relatively well most of the time," notes Bob Dorsa, president of the American Credit Union Mortgage Association (www. acuma.org), Las Vegas, but the real prize is breaking through to purchase money loans.

"Keep in mind that among all CU members with mortgages, only 5 percent have them with credit unions. That means that 95 percent of CU members are going elsewhere to get their mortgages, and that's a huge opportunity that has been largely missed until recently."

To catch that opportunity, CUs need to talk to Realtors and make them aware that a CU maybe the best place to steer a new homebuyer, Dorsa argues. The agent showing properties to a prospective homebuyer becomes a trusted advisor, he observes, and 80 percent of all home sales involve Realtors. A Realtor wants to send the prospective buyer to a lender that can get the deal done quickly so they can collect their commissions, he points out. Most of them are not aware that a credit union could be their best choice. And you can't blame the Realtors because three quarters of all CUs don't make real estate loans.

$1 billionTyndall Federal Credit Union (www.tyndallfcu.org), Panama City, FIa., makes mortgage loans and markets them by mining its databases and sending email and direct mail, as well as using digital billboards. "We've brought in business by advertising how much money a borrower can save by refinancing into a 15 -year mortgage at today's low rates," notes Greg Wheeler, VP/marketing and product development.

Marketing is aggressive. "We go to credit bureaus, where it's easy to see which of our members have mortgages elsewhere and get a pretty good idea what their balances would be," he says. Tyndall CU has also added field staff and made a push to talk with Realtors, builders and contractors, "letting them know about our suite of products," he adds.

CU marketers should be able to identify members under 30 who are still renting, Dorsa says. "The absence of a mortgage loan in a credit report is easy to spot," he points out. And a regular rent payment from a checking account is fairly conspicuous to people who are looking. "The information is there," he insists. "If you don't use it, whose fault is that?"

Using available information and making home purchase mortgage loans is precisely where $1.4 billionUniversity of Wisconsin Credit Union, Madison, is doing well.

"We consider mortgage lending a core business," says Mike Long, EVP/chief credit officer. "Some credit unions strive to be top auto lenders or credit card issuers. Our focus is mortgages. A lot of credit unions are less aggressive about going after purchase loans, but that's our strength."

And that has paid off. Across the board, CUs make on average 2 percent to 4 percent of the home purchase mortgages in their market area, Long notes. "Our share in the Madison SMSA (standard metropolitan statistical area) is 10 percent. We give it a lot of attention, and we're proud of the results."

University of Wisconsin CU doesn't knock mortgage refinancings when the opportunity is there, "but we think the sustainable growth is more in the purchase market," says Julio Rios, director of mortgage lending. "We've seen refinancing waves come and go, and the current wave probably will be going more than coming."

Leading With Education

University of Wisconsin CU's home purchase mortgage strategy is built on hosting monthly seminars. "We get 20 to 30 attendees every month," Rios reports. "We want to explain to attendees how to buy a house more than push any product. If they trust us as a source of reliable information, we think they'll come back to us when they are ready to buy. UW CU has won the Governor's Financial Literacy Award here in Wisconsin two years running, on the strength of our homebuyer seminars among other things."

So far, the seminars are promoted largely on the CU's website (www.uwcu.org) and in its newsletters, which means attendees are largely members. That's fine, Long says.

"The average age of our members is 35, so we have a lot of potential first-time home-buyers. And we're seeing plenty of activity in applications and requests for pre-approval - 1,500 applications in 2011 alone. We have over 90,000 members here in Dane County, so that gives us a strong base to work from."

The other major channel for reaching nonmembers is a relationship with a popular real estate blog that covers University of Wisconsin CU's home county. The CU supplies the blog with information and the blog lists the CU's mortgage rates. The blog in turn has a good relationship with the local newspaper, which frequently cites information from the blog in its real estate stories and publishes theblog's Web address. Newspaper readers who go to the blog see the CU's rates and a link to its website, Rios explains.

Shorter Terms

Making purchase loans to new members may carry the highest rewards, but there's still plenty of oomph in refis. While 30-year fixed still dominates, there has been real growth in refinancings for 10 or 15 years, reports Dave Toepp, president/ CEO of Mortgage Center LLC, a CUSO based in Southfield, Mich. "More homeowners want to look ahead to owning their homes free and clear. About half of the refinancings we see are done to shorten the term."

With today's low rates, few CUs want to hold fixed-rate mortgages, so most are resold, he says. Servicing is always retained by the CUSO. "When rates were higher, we used to design products, but now everyone wants plain vanilla that is easy to resell," he notes.

Toepp agrees that falling interest rates haven't produced a flood of buying and refinancing yet. "So much depends on the borrower's expectations," he says. "One unintended consequence of the Fed's announcement that it would keep interest rates low for a couple more years is that it took away the fear that rates might go up soon. Urgency drives sales. Without the perception of urgency, a lot of people will wait. We did see a small surge of purchases when people expected rates to rise."

"Credit unions are well positioned to appeal to first-time home-buyers or to homeowners who are ready to move up or down.'

Kim Shaul

Resources

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Richard H. Gamble is a free-lance writer based in Colorado.