It's not just the "Why?" but the "How?" How in the world do you create a strategic plan for mortgage lending today when the market is in a state of constant change? How could you even think about a plan of action when products are evaporating, the government is making new rules on a daily basis, and rates are venturing to levels that you never imagined?
While it's certainly a challenge to get a handle on all that is occurring in mortgage lending, this is not the time for "wait and see." It's time to be proactive.
Now is the time to get a clear understanding of members' needs and decide what risk tolerance your credit union can maintain. Make a firm decision on the amount of funds and in what manner you will commit those funds to engage in mortgage lending. And know, too, why you're doing it and if that decision is consistent with your credit union's mission and goals. Let's break down these general areas into specific considerations:
1) What is the employment and economic status of your membership? Do you have a segment of members that need your assistance now to navigate the complicated and troubled waters? Do you have members who are in need of financial advice concerning their mortgage (and perhaps all of their finances)?
If so, now is a prime time to come to their aid. Not only would it be a timely opportunity to educate your members in need with your expertise, but a perfect time to enhance your value in their eyes. In the end, your CU would become — if it hasn't already — the members' PFI. Now is the time to utilize the banking industry's uncertain future to bring your CU to the forefront of financial services.
2) What is the risk tolerance of the credit union in terms of the length of assets that can be held in its portfolio? The interest rate (i.e., rate of return) that the credit union must realize? The credit quality that must be demonstrated by borrower? The dollar amount of funds that could be allocated to both fixed and adjustable products?
Chances are if you've conducted your homework on the lending market, done your due diligence with members' lending qualifications, and continued with a conservative lending philosophy, your credit union's portfolio is in good standing. NCUA's Risk Focused Examination Program identifies seven major categories of risk that should be assessed, ranging from credit risk, interest rate risk through reputation risk. Continue to assess your position in these categories, in cooperation with your ALM plan, to arrive at the right target position for your CU.
3) Does your CU have access to deliver loans directly or through a mortgage services provider into the secondary market, while maintaining the relationship with the member? Could this option be maximized to deliver more loans that are needed by your members in a manner that will reduce the credit union's risk?
If your credit union has the bandwidth and expertise in the lending arena to handle your members' mortgage needs, then you're ahead of the game. However, if your credit union is thin on in-house resources in this area, then it's not a bad idea to research third party mortgage package providers to provide the strategic expertise and 24/7 support that will take your credit union to the next level of service in mortgage lending. There are a myriad of vendors in the marketplace that can provide such a transparent service without sacrificing your close member relationships and keeping your risk extremely low.
4) When will you make an exception to the rules and book a loan into the credit union portfolio even though the applicant does not meet your normal underwriting guidelines? How much money do you have allocated for such risk? What is the member situation that will merit the credit union's exception? How do you quickly obtain an approval for such a loan (since they are often presented in emergency types of situations and must be expedited)? When must you just say "no?"
Credit unions pride themselves on providing personal service on a daily basis. This is really what sets us apart from other "for profit" financial institutions in this high-tech world. Knowing your members and their financial history in a scenario like this is key. Based on these criteria, you can make a wise lending decision on a particular member who may or may not meet all your underwriting guidelines.
Making these decisions in advance will enable you to provide a quick response to your member, enabling them to either move forward with you or to seek an alternative through another channel.
5) Will you maintain the mortgage operations in-house or outsource it? Do you have sufficient experience on staff in all relevant areas of the mortgage cycle-originations, processing, underwriting, closing, funding, secondary market sales, servicing, compliance, quality control, and volume to safely and effectively run an internal program? If you outsource, do you have sufficient communications, control and reporting in place?
As in the questions in issue No. 3, you have to ask yourself these questions if you're looking to go to a higher level and growth in the mortgage lending arena. Ample in-house resources and sufficient experience in today's ever-changing market is not easily defined. It involves retaining seasoned professionals who remain current on the mortgage environment, regulations, compliance issues and technology. On the flipside, if you need help boosting mortgage lending services, don't be shy-talk to an outsourced expert.
Once you've honestly addressed each of the previous five issues and you're ready to proceed with the creation of your strategic plan for mortgages, garner the support of your team and include them in determining what on-going internal communications need to occur regarding your program. Ensure the necessary details are being tracked by an experienced staffer. Organize which items need to be reported to your internal management team and the board. And educate your front-line staff on your 2009 Mortgage Lending Strategy and the programs that are available to pass onto the members and achieve your goals in this department.
Now you're ready to execute the lending plan, but don't forget to communicate it very clearly and frequently to your members. This year, more than ever, your members need to know that they could come to your credit union for the largest and most important financial transaction in their family's life — the one that keeps them in a home that they can afford.
Jill Peterson is AVP Mortgage Business Development with CUMAnet and can be reached at firstname.lastname@example.org or (908) 860-7171.