The mortgage lending industry can be likened to commercial fishing, and we see two distinctive types of fisherman competing within the space. The big-bank national mortgage lenders act as a fleet of large, modern fishing trawlers, casting and dragging their huge nets through wide swaths of the lending seas. They have countless branch offices bobbing along suburban streets like an endless line of floats. The second type of lender–local lenders such as community banks and credit unions–function like local fishermen with fewer resources, smaller boats, less bait and a few private fishing holes they try to keep secret.
As the situation typically stands, the modern fishing fleets (big banks) set their nets around entire metro markets and haul in potential homebuyers by the shipload. Their loan processing and sales systems quickly sort the fish (consumers) they catch into product and pricing compartments based on sets of automated risk and product rules created by financial experts sitting in home-office control rooms. Fish that do not match the initial criteria are quickly thrown overboard. The fish that remain are often shifted from the first compartment to a second compartment where product, pricing and revenue advantages are greatest for the company, rather than for the consumer.
After depleting the fish population in one part of the market, the trawlers move on to other fishing grounds, netting anything that swims–without regard to species, habitat (community) or replenishment. The big fleets don’t need high-tech sonar or precision locators to find the best fish because they sweep up everything. In their wake, the fish that were left uncaught in the nets are all that remain for small, local fishermen. These fishermen seem to be at a disadvantage in terms of competing with the highly equipped fishing trawlers that never slow down. But they actually have an edge–if they can leverage their superior knowledge of the local waters to better focus their community-building efforts and identify untapped and underserved lending opportunities.
If local credit unions expect to grow or survive in an ever-shrinking mortgage lending space, they must compete more aggressively with the national lenders for mortgage originations, consumers and a greater share of the consumers’ wallets. In other words, they must learn to “out-local” the big players, by leveraging their local consumer relationship advantages to offset the pricing, brand, ubiquitous presence, balance sheet and secondary marketing advantages of the big banks. To accomplish this feat, knowing more details about the lending opportunities in their markets to reach consumers more efficiently and capture them more effectively is critical.
Mortgages can be a significant driver to credit union growth, but only if positioned as franchise products that are fundamental to a vibrant member service strategy, rather than one of a long list of traditional banking products available to the consumer. Households need trusted home financing help from local lenders who understand their communities. Mortgages help credit unions expand their appeal to their targeted member households, especially as large banks and national lenders continue to falter in the mortgage meltdown and struggle to maintain and cultivate strong relationships in local communities. Mortgage lending is essential to their sustainable expansion and efficiency–in terms of increasing consumer households, cross-selling more financial products and protecting the franchise. If credit unions ignore this, their community impact will stagnate, their earnings will flatten, and they will be at risk of losing their member base.
Quantifying the size, dynamics and neighborhoods of the market’s mortgage lending opportunities and home-buyer behaviors is like possessing high-tech sonar. It can be a powerful competitive advantage for credit unions. Yet mortgage markets and home-buyer segments have become far too dynamic and diverse for credit unions to rely solely on local intuition or experience. Instead, they must become more disciplined, more knowledgeable, more flexible and more precise about the size and types of lending opportunities in their local communities. These unique metrics will also help credit unions strengthen relationships with local agencies, referral sources, and employers that provide access to homebuyers and future members. This strategy can only be accomplished with the proper research and access to market metrics that enable CUs to anticipate and forecast mortgages.
It is imperative that the local fishermen acquire better information as well as market knowledge and precision in order to pinpoint the local lending opportunities that the trawlers don’t see. Credit unions don’t need a bigger fleet to compete. They need better sonar. If they don’t focus their efforts, their franchises will be at risk. Credit unions must not settle for the left-over market the big lenders miss; rather, they must proactively and aggressively identify the healthy fish first-hand in order to not simply survive, but prosper in today’s rough seas.
Dennis Hedlund is president of iEmergent, a Des Moines, Iowa-based market research, forecasting and advisory services firm for the financial services industry. For info: www.iemergent.com. (c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com http://www.sourcemedia.com