Riding the Waves [Credit Union Management]

CUs work hard to navigate the ebbs and flows of mortgage lending.

The mortgage marketplace could never be described as placid, but the business of making home loans has been especially turbulent in recent years. In the wake of the "perfect storm" that raged through the real estate sector, prolonged low interest rates have powered a steady gale for refinances. But what happens when those winds inevitably calm?

It's too early to tell whether evolving social and economic trends will change the mortgage lending cycle permanently (read more about this in bonus coverage at cumanagement.

org/041713newnormal), but navigating the truest course to avoid the need to hire, train and then lay off originators and processors still comes down to the tried- and-true strategy of building your credit union's reputation as the place homebuyers turn for financing. Even when refi demand dims, lenders with a solid share of the purchase money market can continue to sail along.

CUs can't change the cyclical demand for mortgages, so they must meet it, says Deborah Atherton, VP/real estate lending for $1.3 billion, 110,000-member Anheuser-Busch Employees' Credit Union (www.abecu.org), St. Louis. "You have to be proactive to get people on staff. Otherwise, you might end up with a huge pipeline, and it's too late. Members won't wait around forever."

In 2012, the demand for refinancing was so high CUs could raise rates to slow volume, but this year margins are likely to be tighter and remaining borrowers in line for refis may find it harder to qualify because of persistent unemployment or high loan-to-value ratios, Atherton says.

But even as refi traffic slows, Anheuser-Busch ECU is ramping up staffing, doubling the size of the mortgage department from its current two loan officers and a manager by hiring three more loan officers. The goal: "putting loan originators out on the street to build our market share for the purchase market." The CU is planning more home-buying seminars, sending representatives to chamber of commerce meetings, and hosting Realtor events.

Jumping on the Bus

For example, loan officers sponsor food trays and supply literature on open house Tuesdays and jump on the bus with Realtors touring new homes for sale, which provides "a captive audience for four hours" to talk about mortgage products and services, she says. One such product is the CU's "5-5 ARM," which adjusts every five years; borrowers who hold their mortgage for 30 years can count on a maximum of six rate adjustments.

Anheuser-Busch ECU also invited a focus panel of Realtors to come learn about its mortgage department and offer feedback. "We asked them, 'What are your expectations? What can we do to improve service to clients that would cause you to recommend us?'" Atherton says. "Everyone was very interactive. They didn't hold back."

Another strategy for building purchase volume is pairing a mortgage loan officer with a local Realtor and sending them to branches to talk with front-line staff about how to identify potential mortgage cross-sales and spread the word that the credit union offers mortgages.

Anheuser-Busch ECUs mortgage lenders are also working with colleagues in other departments, developing new marketing strategies and cross-selling mortgages to business members.

"When they're doing a loan for a commercial property, we ask if they want to bring their mortgage in as well. And when we're doing a mortgage, are they interested in a business ban?" Atherton says. "We've seen some very positive reactions from members. It's like onestop shopping for them."

These multiple paths to increase purchase volume support the strategy the CU has been pursuing for five years, geared to coincide with expectations that the real estate market will rebound in step with broader economic recovery. The CU's purchase money volume in 2012 was about 35 percent of mortgages (which totaled $188.9 million), and the credit union is aiming this year for 3 percent net growth in its mortgage portfolio.

"You can never have your hat in too many rings," Atherton says. "You have to be able to adapt to market changes."

Building Your Rep

In the mortgage lending industry over recent months, the ratio of refi-to-purchase loans has averaged about 80/20, with the norm among credit unions even more skewed to around 90/10, estimates CUES member Bill Vogeney, EVP/chief lending officer of $3.7 billion, 205,000 -member Ent Federal Credit Union (www.ent.com), Colorado Springs, Colo.

By comparison, more than 30 percent of Ent FCU's mortgage volume in 2012 (totaling $563.9 million in 3,503 loans) was for purchase loans, and demand among home buyers continues to be relatively high this year. That strong performance is the result of hard work that began a decade ago, coming out of the last refi boom, Vogeney says.

Mortgage loan officers have put in many hours networking with Realtors and "handholding" with borrowers and their real estate agents to demonstrate the officers' know-how and perseverance to take home loans all the way to closing. "You really have two customers in the transaction, the members and their Realtors," Vogeney says.

You're not going to flip a switch and turn up the purchase volume in six months," cautions Jon Paukovich, Ent FCU's VP/ mortgage lending. "You have to have boots on the ground and be able to show Realtors you know how to make purchase loans. And with so many short sales and HUD (U.S. Department of Housing and Urban Development) foreclosures even now, that can be a much more complex process."

CUs that want to compete in the purchase loan market also need to offer a full menu of loan options, Paukovich recommends. In addition to mortgages that conform to Fannie Mae standards, Ent FCU offers U.S. Department of Veterans Affairs and Federal Housing Administration loans, the latter of which is the first choice for about half its members buying their first homes. The CU has also signed on to make loans offered through the Colorado Housing Finance Authority; while only a few loans a month are made through this program, the CU s participation supports its positioning as a full-service mortgage lender.

Seizing Opportunity

Sometimes, it helps to be in the right place at the wrong time. "One of the defining moments for us was after the financial crisis in early 2009 when a lot of mortgage companies were closing their doors with deals ready to close left on the table," Vogeney recalls. "Borrowers who thought they had a loan suddenly didn't. They and their Realtors turned to us, and we gave their loans priority and got them closed in as little as two weeks. That built a lot of credibility with Realtors, who then told their Realtor friends about us."

Even the most concerted effort to expand purchase mortgages won't eliminate the impact of rate swings and other economic factors on home loan demand. In 2006, about 60 percent of Ent FCU's mortgages were for home purchases. The last five years, though, have been primarily about refinancing, so the CU has initiated other strategies to manage that pipeline, such as offering simple rate modifications at low cost to some members to avoid a full refinance and converting some mortgages to home equity loans, which are handled by consumer loan officers.

"Ultimately, we still needed more people, but instead of going outside and trying to find experienced mortgage processors, we looked internally to member service staff with strong organizational skills who already know our culture," Vogeney says. "Some of these employees are among our best processors," but if and when mortgage loan volume decreases, they can transfer back to other departments, eliminating the need for layoffs.

Servicing as a Service Showcase

Ent FCU keeps servicing in house, which sits well with some borrowers, produces a steady revenue stream, and gives the CU additional opportunities to burnish its reputation for high-quality service, Paukovich notes. In a region prone to hailstorms, mortgage loan servicers respond quickly to work with insurers and even other lenders in some cases, so homeowners can get their damaged roofs fixed quickly.

After the Waldo Canyon fire last year that destroyed 360 homes and damaged hundreds, Ent FCU checked addresses of affected homes as soon as local authorities released them and contacted the CU's mortgage holders with offers to help them begin the process of rebuilding. "We earned some positive press for reaching out right away," he says.

Over time, the commitment to market mortgage pre-approvals to members, network with the real estate community, and offer a full menu of loans combines to build your mortgage business, Paukovich says. "But it's a long-term investment you need to be able to sustain, so you may need to figure out what you can do incrementally."

Resources

Read bonus coverage from this article at cumanagement.org/04U13newnormal.

It pays to have a solid memory of how the marketplace has acted in the past. Read "Loan Zone: Elephants in Lending" atcumanagement.org/032613loanzone.

Save $300 when you register by May 31 forthe CUES School of Mortgage Lending (cues.org/soml), slated for July 16-17 in Cambridge, Mass.

Mortgage Lending Compliance a Full-Time Job - and Then Some

Keeping pace with changing mortgage lending regulations is more than a full-time job, says Jon Paukovich, VP/mortgage lending for $3.7 billion, 205,000-member Ent Federal Credit Unionwww.ent.com), Colorado Springs, Colo. In fact, Ent FCU dedicates about 2.5 FTE positions to the effort, including a credit and compliance administrator post focused exclusively on ensuring compliance with federal and state regulations and evolving standards from the secondary market.

To manage regulatory resources on both the production and servicing sides of its mortgage operations, $1.3 billion, 110,000-member Anheuser-Busch Employees' Credit Unionwww.abecu.org), St. Louis, has hired a quality control manager who previously worked on its internal audit team. "We tried to disburse those responsibilities within the department, but there were too many changes to spread it around," says VP/Real Estate Lending Deborah Atherton, a CUES member.

Useful regulatory resources these credit unions rely on include:

* NCUA webinars and online guidance www.ncua.gov);

* publications, online updates, and webinars provided by industry associations such as the Credit Union National Associationwww.cuna.org) and its lending council www.cunalendingcouncil.org), the National Association of Federal Credit Unionswww.nafcu.org) and CUES;

* resources provided by mortgage partners; for example, at Ent FCU, "we work closely with Prime Alliancewww.primealliancesolutions.com) to ensure that the system is in compliance," Paukovich says;

* the U.S. Department of Housing and Urban Developmentwww.hud.gov); HUD's department, the Federal Housing Administration; and the U.S. Department of Veterans Affairswww.va.gov) for policy changes on lending programs they sponsor;

* Fannie Maewww.fanniemae.com), other secondary mortgage lenders, and mortgage insurance companies for updates on their standards and policies;

* American Credit Union Mortgage Associationwww.acuma.org);

* webinars sponsored by Professional Bank Services www.probank.com);

* AllRegs www.allregs.com), an online resource on mortgage lending regulations; and

* Mortgage News Dailywww.mortgagenewsdaily.com).

Karen Bankston is a long-time contributor to Credit Union Management and writes about credit unions, membership growth, marketing, operations and technology. She is the proprietor of Precision Prose, Stoughton, Wis.