It's Time to Make Mortgages

Capture mortgage market share while you can.

May 23, 2011

Not since the Great Depression—a time when many credit unions were formed—has there been a better economic climate for credit union growth.

Most credit unions didn’t originate the “subprime” or “exotic” mortgages that contributed to the housing meltdown, but we’re paying for them through higher loan losses and additional NCUA assessments. While we wish the housing crisis and recession hadn’t occurred, they do offer opportunities for credit unions to serve more consumers.

One of the biggest growth opportunities is in mortgages. Many consumers face extensive additional bank fees, and they’re voicing their distrust of large banks. Credit unions are in a perfect position to capitalize on this sentiment and educate the public about the benefits of becoming members of—and financing their homes through—credit unions.

Here are two compelling reasons to emphasize mortgage lending at your credit union: noninterest revenue and improved relationships. The best opportunity isn’t the one that appears at your doorstep; it’s the one you go after. So how can you go after it?

Start with a strategy that defines where your credit union is going and how it will get there. My credit union’s mortgage strategy has four key components: acquisition, pricing, products, and member experience. Regarding the latter, members are on the receiving end of origination and servicing, so we consider the member experience in all facets of the strategy.

BECU, in Tukwila, Wash., aligns the member mortgage experience with its remote operating model, offering a streamlined online application process supported by neighborhood financial centers, the contact center, and mortgage processing areas. This ensures efficient application processing, while offering members choices on how to interact with the credit union and obtain information during the loan origination process. Efficiencies transfer back into competitive pricing.

BECU’s mortgage rates and fees are set to ensure competitive pricing, while maintaining the appropriate contribution to the cooperative. In general, we base pricing on Fannie Mae’s daily 30-year, fixed conforming rates, with estimates and adjustments for jumbo, adjustable-rate, and other types of mortgages. Pricing must help the credit union:

  • Meet specific target returns;
  • Position itselfwithin the competitive marketplace; and
  • Analyze volume implications.

Once a mortgage closes—whether it’s sold or held in portfolio—BECU retains the servicing to preserve the member relationship. We work directly with our servicing agent to ensure acceptable service levels and prompt problem resolution.

Like many credit unions, BECU has room to grow with its mortgage product penetration among existing members. Just over 6% of member households currently have BECU mortgages. They’re among our most engaged members, and there’s a direct relation between mortgages and other products. About 83% of members with mortgages have checking accounts, and 81% have additional products (excluding checking).

Capturing members’ mortgages also helps the balance sheet. Sales of serviced mortgages can help offset lost noninterest income due to changes in debit card interchange fees. With a sound strategy for servicing and secondary marketing, credit unions can effectively manage mortgage portfolios’ interest and concentration risks.

To be successful in the long run, credit unions must attract home buyers. With recent low mortgage rates, we’ve been able to rely on a high volume of refinancings. But this won’t last forever.

For about 72% of consumers, it’s more expensive to rent a home than to own it. The combination of affordable housing and affordable pricing will make it attractive for members to purchase homes.

Take advantage of this opportunity to become the mortgage lender of choice in your community.

AARON BRESKO is vice president of lending at BECU, Tukwila, Wash., and chair of the CUNA Lending Council. Contact him at 206-439-5008.