The cost to originate is at an all-time high, forcing many credit unions to re-think their lending operations. At the same time, demand for mortgage products remains high. Despite a harsh winter which led to a slow-down in early 2014 sales, the National Association of Realtors® projects existing home sales to total just over 4.9 million this year.
To capitalize on this demand, credit unions must find ways to continue offering mortgages. With rising origination costs coupled and today's fluctuating regulatory conditions, outsourcing is gaining attention, however, the idea often carries a negative connotation. While there are dangers, it can also be the solution to staying in the game.
One of the largest hesitations for financial institutions is how outsourcing will impact the overall quality of member service. If not done carefully, member service can be negatively affected through an outsourced model, but it also has the capacity to be strengthened by enabling the institution to devote more time and resources to its core business.
The overall experience you provide borrowers is crucial to the long-term success for any financial institution. Creating an emotional connection and leveraging a member-centric approach is one of the most effective practices to ensure superior service. Credit unions must find a partner that enables them to continue supplying mortgage products but in a way that supports their member service levels.
In addition, institutions that outsource effectively can spend more time on their core business. For credit unions that offer a range of depository services, this allows them to place a greater focus on those other services and provide more attention to members. Outsourcing also enables credit unions to focus more time and resources on building and implementing high-quality member service initiatives.
Outsourcing provides significant benefits in regards to maintaining compliance. Today, institutions are challenged with knowing, implementing and staying up to date with the hundreds of pages of regulatory guidelines — both time-consuming and costly, not to mention risky. To overcome this challenge, credit unions can outsource their lending operations to an experienced team, thus improving operations, reducing costs, and better adhering to new and future regulations.
There could be competitive dangers to outsourcing if you fail to properly vet potential partners. For example, if your outsourced partner is a large bank, that bank could easily begin marketing other services to your existing member base, such as checking accounts and other loan products. For this reason, it is imperative to know your partner's goals and whether they plan to cross sell.
Outsourcing can provide a valuable member experience, but it can also destroy your business if the wrong partner is selected. While mortgage products remain in demand, institutions — particularly smaller institutions with limited staff — must consider the benefits of outsourcing and then carefully evaluate potential partners to avoid common pitfalls. Doing so will not only enable you to stay in the mortgage business, but thrive.
Dennis F. Hardiman is founder and chief executive officer for Embrace Home Loans, an approved lender for FHA, VA and an approved seller servicer for FNMA, FHLMC and GNMA. For info: www.embracehomeloans.com.