Today’s mortgage market is a two-handed affair for most credit unions.
On one hand, there’s still potential for growth in a sluggish market. While overall mortgage growth likely will be flat in 2015, the outlook for credit union mortgage lending is bright, says Matthew Abbink, vice president of direct lending at CU Members Mortgage. “Credit unions have consistently grown their share of the mortgage market, and we’re confident they’ll continue to do so.”
On the other hand, Tom Pisapia, senior vice president at QR Lending, says credit unions should prepare for a mortgage lending slowdown. “According to NCUA, first mortgages grew 8.9% during the first quarter of 2015 compared with the same period in 2014. But the early drop in rates this year accounted for much of that activity, dramatically increasing refinancing business.
“We saw our credit unions’ ‘refi’ business jump significantly during the first quarter,” he continues. “Although we all love seeing this business, we must realize it’s the low-hanging fruit and it will end. We must prepare for an inevitable rate hike and begin to shift our focus to purchase business.”
Plus, new mortgage guidelines have eliminated otherwise qualified borrowers—such as self-employed members—from the market, Abbink says. “Credit unions still approach mortgages the way they did before the housing market meltdown: with a focus on member relationships. While there’s a need to look at loan originations objectively, credit unions can apply their deep member relationship knowledge to making loans.”
This attitude, he says, has created an inflow of bank customers to credit unions. But while this is positive in some ways, Abbink cautions credit unions about the need to apply stringent credit criteria to loan applications from nonmembers.
Another development on the mortgage front is the increased compliance burden, says Abbink. One big issue is the Oct. 3 introduction of regulatory changes under the Truth in Lending Act-Real Estate Settlement Procedures Act integrated disclosures (TRID) rule.
This rule integrates all required mortgage disclosures into two new forms, the Loan Estimate (to be provided within three days of receipt of a loan application) and Closing Disclosure (to be provided at least three business days before closing). The new forms are meant to provide borrowers with additional information to help them understand all costs associated with their loan.
This has created a technological burden with regard to the amount of programming—many lines of code—that will be necessary to accommodate the changes TRID brings, Abbink says.
“Everyone in the mortgage industry is on pins and needles regarding how this rule will work,” he says. “It could significantly delay closings by a matter of weeks. Right now, real estate agents are not up to speed on it,” an obstacle credit unions should try to remedy with educational outreach.
“Another concern for credit unions will be closer regulatory oversight of fair lending practices and pricing policies,” says Abbink. “Also, staff interactions with members will come under scrutiny. Does a staffer discourage a loan application because the member says something like, ‘I don’t think my credit score is very high.’ ”
Pisapia agrees the biggest mortgage-related issue today is compliance. “It seems that a day doesn’t go by that another lender is fined for some mortgage wrongdoing,” he says, citing hefty fines levied recently by the Consumer Financial Protection Bureau and the Department of Housing and Urban Development.
In addition to the cost and effort involved with compliance, even more far reaching could be the reputational risks of noncompliance, Pisapia adds. “Ironically, at a time when credit unions are growing in memberships and member satisfaction, far outpacing banks in those categories, an unintentional mortgage compliance error could blemish their reputation.”
NEXT Third-party involvement