NORCROSS, Ga.–Spotting a need in its market for a no closing cost mortgage, Associated CU here launched its own, netting nearly 300 loans, more than 85% of which were new to the CU.
Chad Evans, AVP of mortgages, explained that a popular mortgage broker in its market had offered a similar product for years, but oftentimes members “got into the process and it wasn’t what they expected. From our membership feedback, we wanted to offer something that truly lived up to what the billing was.”
Associated’s launched the no closing cost mortgage on November 1, 2011, and accepted applications through the end of February 2012. It allowed members to refinance or purchase a home at 3.5% interest for up to 15 years with no closing costs.
Evans explained that while there was no specific floor for credit scores, everything was fully underwritten, appraisals were required and all applicants had to be approved eligible through Fannie Mae’s Desktop Underwriter.
In addition, Associated looked at factors such as the applicant’s relationship with the CU, time on the job, time in the home, equity and more. No loans at more than 80% LTV were accepted.
How It’s Being Promoted
Rather than promote it with TV or newspaper ads, the $1.2-billion credit union relied on statement inserts, web banners, in-branch signage and word of mouth. In the end, the CU approved just under 300 loans for a total of $34 million.
During the same time period the previous year, Associated closed 181 loans totaling $24 million.
The results have earned it a Best Practices Award from Credit Union Journal.
“The main thing I felt was a success was that out of the 300 loans, 87% of them were loans that we refinanced from outside of Associated CU,” said Evans, adding that 50 of those loans were new members. The average loan amount was $110,000, about $20,000 less than the CU’s typical mortgage loan, because it set a minimum loan amount of $50,000.
Before this promotion, “people with small balances didn’t want to pay the closing costs because they didn’t’ feel like they would make the savings back in a short amount of time,” noted Evans. “We had a lot of those members that came in and refinanced because it didn’t cost them anything.”
Associated Credit Union also negotiated with vendors to help minimize costs to borrowers. The CU was able to get the attorneys for title insurance and termite inspectors–requirements of the state and the CU, respectively–to accept flat fees in tradeoff for volume. Rather than building those fees into the cost of each loan, Associated disclosed the costs to the member on the Good Faith Estimate and listed them as a lender credit.
Speeding Up Process
Associated took an average of 30-45 days to close the loans and finished all of them by April. Since that time, its mortgage portfolio has grown another $10 million, which Evans says is normal if extrapolated over the course of a year.
According to its most recent Call Report, Associated has 1,0001 first mortgages on its books totaling $139 million. All told, it has more than 89,000 loans in its portfolio, totaling more than $524 million.
Evans said that management is toying with the idea of offering the product again, possibly extending the term or including some low closing costs–in part because rates are even lower now. But if it makes an encore, it will likely be during the same time period.
“Typically that’s the time of year that’s a little bit slower for mortgages,” he said. “We would love to offer it year-round, don’t get me wrong, but there are resource constraints.”