According to CUNA’s 2017-2018 Environmental Scan Report, the credit union industry’s first mortgage portfolio has grown at near double-digit rates since 2013.
Even more telling is the growth rate of credit union mortgage market share, which jumped from 6% in 2015 to 13% in 2017, according to Experian. While credit unions’ market share will likely grow as their membership increases, this does not mean credit union origination volume will keep pace.
The most recent 2018 finance forecast from the Mortgage Bankers Association predicts total mortgage originations will be $1.62 trillion for the year, down 5.5% from 2017.
Why? With low unemployment and the tax bill producing an economic stimulus, the Federal Reserve is expected to raise rates multiple times to deter inflation, causing the total mortgage refinance volume to slide from 35% in 2017 to an estimated 27% in 2018.
Moreover, housing inventories continue to be historically low, and new construction will take time to meet demand. Given these circumstances, measuring success by the mortgage industry’s conventional yardstick—number of “units” closed—may not be the right strategy now.
Consider realigning your success goals around profitability.
Below are the three components that determine your profitability:
1. Origination volume. Macroeconomics will play a large role in application volume, so this is your least controllable factor.
2. Pricing/margin. This factor is influenced by what you charge members, the price secondary market investors will pay, your business strategy, and competitive forces.
3. Cost to originate. Consider variables such as personnel compensation, technology, occupancy, equipment, marketing, and outsourcing expenses.
Measuring success based on the profitability of your mortgage department instead of solely on the number of units produced allows you to identify specific areas where you can drive improvements.
If you’re most concerned about volume, evaluate your marketing efforts, loan officer strategies within the community, and the potential impact of expanding your product offerings to attract new business or capture more loans from applications.
When assessing income per loan, consider your investor choice and the possibility of negotiating better terms, as well as the use of your own balance sheet to increase your interest income. Also, explore better execution methods to capture more spread and reduce pend and pair-off fees by more closely monitoring your pipeline.
Take a hard look at your cost to originate, including loan officer compensation, allocation of staff based on volume, utilization of your POS/LOS, and the cost/benefit of your marketing strategies.
We’ve developed a checklist to assist you in this evaluation process. For each of the production strategies mentioned, document your organization’s various strengths and weaknesses relative to the strategy’s characteristics.
You may find you’re missing opportunities by not offering a portfolio product, or discover you could add FHA/VA/USDA to your offerings if you partner with a secondary market outlet in a wholesale or correspondent relationship.
You may even decide that contracting out the underwriting, processing, or closing function would reduce risk and increase profits. There’s nothing wrong with mixing strategies to maximize your potential and meet members’ needs.
Download the complimentary Mortgage Strategy Checklist here.
PATRICK BLAWAT is director of sales for QRL Financial Services, a division of FFBF, in Madison, Wis.