With the displacement of mortgage brokers as the predominant source of loan originations, credit unions are faced with a unique opportunity to gain market share and keep it.
Currently, broker originations account for less than 15% of all mortgage originations, a decline from the 65% mortgage brokers originated in recent years. With the dust still settling, brokers face stronger regulation, the types of loans available to consumers are fewer, and underwriting guidelines are tighter. The timing is perfect then for credit unions to now gain sustainable marketshare in mortgage lending.
CUs have fared well with growth in the past during periods of low interest rates. This is typically the result of mainstream mortgage lenders being overwhelmed with demand and consumers looking for other available sources of mortgage financing. Then when rates rise, credit unions tend to lose that marketshare as banks' capacities are once again freed up to aggressively pursue new mortgage business.
Statistics have shown that once a consumer leaves or steers away from his or her primary financial institution (PFI), it is harder to win back that business. When a large bank attracts a consumer with a mortgage loan, it will (effectively) then cross-sell other services to absorb the whole of a consumer's financial business.
Today, loans are being originated at the highest credit standards seen in decades, allowing credit unions to provide safe-and-sound lending to its members. An available secondary market allows credit unions to sell conforming assets effectively, freeing up balance sheet capital for other lending opportunities.
There are three kinds of credit unions: 1) those currently in the mortgage business that understand the risks and have a strategy in place to manage those risks; 2) those that are providing mortgage loans but do not have an effective risk management strategy in place; and 3) those not currently in the mortgage business but can see the opportunity at hand. Despite the type, all credit unions are primed to increase their mortgage marketshare, else the large banks will continue to monopolize the industry, therefore threatening some of credit unions' existing business. When considering how all of these credit unions can capture and retain mortgage market share, here are three areas they must all consider:
Focus on marketing.
Credit unions need to identify themselves in the mortgage space and establish a consistent mortgage brand. Their members (and potential new members) must recognize credit unions as a viable source for mortgages. To do that, credit unions should embark on awareness and direct marketing campaigns to inform existing members about their mortgage offering and remind them consistently. Secondly, outline a similar, education-based expansion strategy for reaching new members. Market opportunities exist not only in increasing service touch points within the core, but also in attracting new individuals altogether with the products they need.
Effectively manage operational risk.
Credit unions need to ensure they have the correct infrastructure-meaning the technology, process and people-to originate high quality, saleable mortgage loans. Mortgage fulfillment and related services are just one area of focus-among many-for credit unions, meaning most lack the specialized knowledge and available staff to quickly modify internal capacity in reaction to varying market cycles. This is particular true in an ever-changing regulatory compliance environment where people and systems need frequent updating. Where credit unions can turn is outsourcing, enabling them to place their attention on members while experts maintain the required capacity and growth, compliance and quality control measures, and production volumes. All this serves to eliminate operational risk and minimize costs.
Leverage access to the secondary market.
Solid relationships with the secondary market enable CUs to manage credit and interest rate risk more effectively, as they can avoid having to portfolio these loans on their books. Selling to the secondary market would allow them to lend consistently, remaining as viable market competitors.
As credit unions consider the new financial landscape, it should no doubt encompass mortgages. Being a cornerstone financial product, mortgage loans will lead to other forms of financial services, enabling credit unions to gain greater market share in all of its key performance areas.
Rick Seehausen is CEO of LenderLive Network, Inc., and can be reached at email@example.com or 303.226.8001.