SANTA ROSA, Calif.–With low rates largely a commodity but with fees that are below market, the $2-billion Redwood CU has found another factor is helping drive mortgage volume: being locally owned.
Cynthia Negri, SVP retail lending, said although Wells Fargo and Bank of America are omnipresent in California, Redwood CU also is getting its share of mortgages as the result of how its service is perceived.
“In our marketing we emphasize the fact we are a local institution, which is very important to this area,” she said.
Whatever the reason, potential borrowers are flocking to the credit union. Negri said RCU is experiencing record apps in 2012, with an average pipeline of about $110-million. In 2011, it averaged $80 million. In 2011 Redwood CU funded more than $260 million in mortgage loans. It is projecting a 17% increase to $304 million in 2012.
“We are actually seeing high-quality applicants with good debt-to-income ratios,” said Negri. “While some underwriting standards industry-wide have tightened up, we do not think it is difficult or impossible for people to find a mortgage.”
The Biggest Challenge
The biggest change Negri sees from previous years relates to income documentation. In the past Redwood might have taken stated income or perhaps one year of tax returns, but now it is requiring two years of documented income and tax returns.
“Another change on the purchase side is the downpayment,” she said. “We are requiring 20% down, which is prudent and is a change from previous years when we allowed 10% or even 0% down.”
Approximately 80% of Redwood’s mortgage business is refinances, although Negri said the purchase volume is picking up.
Fewer Errors In Appraisals
Thanks to the many new regulations governing appraisal standards and how they have to be formatted, there are significantly fewer errors today, Negri asserted. She said the issue is not with appraisers but with market conditions.
“Values are coming in a lot lower than our members expect. The members do not realize the effect of the recession on housing prices. About 50% of our decline rate is due to discrepancy in value. In the refi scenario what they owe on the loan comes out to more than 80% of the value.”
To mitigate interest rate risk Redwood CU has done “a lot of work” as its real estate portfolio has grown, Negri reported. She said it has developed aggregate risk models to show levels of risk within its portfolio, it targets the level of risk it wants to have and then manages to that level.
“We make sure our total portfolio is not above what our risk tolerances are,” she said. “About 60% of our mortgages are sold, but we retain servicing because we want to make sure our members receive a high level of service.”