While opportunities exist in today’s mortgage market, success requires a true commitment to strategy and a new competitive model, according to consultants from Cornerstone Advisors.
“Generally speaking, the mortgage market has been good for credit unions that are willing to compete,” says Ron Shevlin, Cornerstone Advisors’ chief research officer. “Many banks have pulled out of it in recent years, though some may be looking to get back in with deposits up recently. It's not the kind of market you can just get in and out of. It's competitive.”
Top fintech competitors include Rocket Mortgage and Loan Depot, which have reshaped the competitive requirements of the mortgage market with lightning-fast, seamless online approval processes.
Competing with fintechs means essentially adopting their delivery model in many respects, according to Daryl Jones, a senior director in Cornerstone Advisors’ mortgage lending area.
While many credit unions and banks offer loans primarily as service, “it has to be a true strategy,” he says, adding that mortgage volume and related income have been high for the past couple of years.
“Now, lenders are trying to figure out, ‘Do we really want to commit to this? Do we have a strategy moving forward? Or do we just go back to what we used to do when it was lower volume?’” Jones says.
Financial institutions are trying to determine what their business model should be going forward, he says. “They’re trying to be more focused.”
That model must address loan officer compensation. “If you’re receiving more applications digitally, your mortgage loan officers are going to be more internally focused on processing applications rather than selling externally,” Jones says. “Internals don’t make as much as those beating the doors down.”
Credit unions can hold their own against fintech competitors with the right focus, Shevlin says. This includes acting fast.
Effective credit unions aren’t “taking three to four weeks to make underwriting decisions,” he says. “They're providing good front-end digital application capabilities and they’re getting back quickly with approvals or providing guidance on the best options members need to consider for their next steps.”
Speed is especially important in the current market with housing demand at near unprecedented levels and rising interest rates.
“It’s amazing watching the prices on Zillow,” Shevlin says. “Home values seem to go up every week.”
In May, Zillow predicted home values would rise 11.6% in the next 12 months. That makes for tough lending decisions in certain markets, Shevlin says.
“If your member base comes to you looking for $800,000 loans on $1.1 million dollar homes and they don’t quite have the credit scores or the income to support it, that puts you in a tough position,” he says. “Every smart executive knows the No. 1 reason a member leaves the credit union is because they were denied a loan.”
And although credit unions must provide fast loan decisions, obtaining a mortgage shouldn’t necessarily be an overnight experience for consumers, Shevlin says, citing the time required to improve credit scores.
“It’s a process that takes six months, a year, or two years for some people,” he says. “Credit unions are willing to work with their members, but we’re in the middle of a frenzy.”