If you are handed lemons, make some lemonade, right?
According to CUNA, at least 25% of all American consumers use credit unions as their primary financial institution. However, credit unions only captured 4% of the first mortgage lending market. Most credit unions have seen increased demand since the recent failure of many brokers and mortgage banks; yet they are still challenged with transitioning their brand from a niche relationship lender to a preferred mortgage lender for an expanding member base.
Add to that, all credit unions have felt the pinch of regulatory compliance, new standards and imposing limits that require greater access to the secondary market versus balance sheet lending practices of the past. According to NCUA, almost 20% of credit unions today are on some type of regulatory watch list, which means they have balance sheet or regulatory concerns that may impact their future viability.
Although concerning, it is also a clear indication that consolidation within the credit union community is imminent. The ultimate result of that consolidation, however, will yield stronger, more diverse and larger credit unions over time.
The Role of Mortgage Lending
That is where mortgage lending plays a big role-being a critical component to credit unions expanding their service offering. Product diversity brings growth potential. So what are credit unions' options to successfully jump-start, grow or sustain their residential mortgage presence?
Ask John Sweitzer at Alliant Credit Union of Chicago. Management at Alliant sought to increase its scale, develop more economical ways to service members and at the same time remain fully compliant with all the new laws and regulations.
"A daunting task," said Sweitzer, the production manager who is responsible for mortgage lending at Alliant. "It just made sense to look at our existing capabilities, our current partners and evaluate another way to execute. Mortgage lending is a significant part of our overall service offering to our members. Now, more than ever, members look to their credit unions for safe, sound and unbiased advice and counsel. We needed to improve our method in providing this key product and service."
There are two primary approaches available to help members stay safe, sound and compliant:
Exit, be passive or have a limited mortgage offering. Credit unions can avoid the high cost of mortgage lending as well as greater credit and compliance risk. Adversely, that leaves members seeking products from competitors. Limiting product selection to balance sheet ARMs can easily chase 75% of the market opportunity to fixed-rate players. Without product diversity, members will seek assistance from other financial institutions and be targeted for cross sales.
Jump in with both feet. This approach may increase credit and compliance risk plus challenges to meet regulatory changes and technology advancements. Credit unions may also face difficulties in managing scale, competitiveness and ongoing member relations.
Fortunately though, expanding service options offers fee and interest income generation, a new level to member acquisition and retention strategies, cross-sell potential and the chance to capitalize on being recognized as a trusted mortgage lender. In addition, like in the case with Alliant, there are also outsource providers that will partner with credit unions and allow them to leverage existing, compliant processes and fulfillment services.
Some Things To Consider
There are ways to mitigate the cons for those credit unions that see this golden jump in opportunity presented to them. Mortgage lending can be a strategic game-changer for progressive credit unions. Here are a few things to consider:
• Examine carefully and candidly what is important regarding your members' experience. What are your credit union's strengths and weaknesses?
• Determine what mortgage process functions you need maximum control over.
• Seek advice and counsel from third parties regarding regulatory changes and upcoming investments to remain compliant and ahead of the changing industry.
• Look to industry outsourcers to provide technology solutions and fulfillment services for those functions that are not core to your overall plan.
• Look outside of your own balance sheet, into the secondary market, to access long-term, fixed-rate products to remain competitive and relevant.
• Be sensitive to whom you sell mortgage loans to so you can help ensure an ongoing, non-competitive relationship with your member.
The more active credit unions become in the mortgage industry, the healthier our overall economy and the more diverse lending distribution can become.
Joe Camerieri is VP-sales with LenderLive Network, Denver. For info: www.lenderlive.com.