Smart ways credit unions are capitalizing on home lending and meeting different member needs.
The last several years have been tough on everyone involved in the mortgage business, although in different ways for different players.
While credit unions have not been immune from the impact of the mortgage crisis, they have generally fared better than other lenders.
Not only did credit unions avoid making the type of risky loans that sank the housing market, many of them serviced these loans themselves. That has meant credit unions are typically more flexible than other lenders when it comes to restructuring a mortgage loan.
At the title appointment, they just sign a signature pad once and it uploads to all of the documents.
– Jeanie Olsen, VP of Mortgage Services,
Mountain America CU
Though 2011 saw some signs of improvement in the housing market, delinquencies and foreclosures remained a problem for many lenders, including credit unions. The sheer volume of problem mortgage loans came down a bit from the previous year, but many credit unions still found themselves faced with the challenge of dealing with foreclosure issues and late payments while also trying to expand their mortgage portfolios.
A comprehensive approach
One credit union that has met this challenge quite well is Mountain America CU in West Jordan, Utah. While the $2.9 billion credit union used to handle all of its foreclosures and property resales in-house, it shifted those responsibilities to its credit union service organization (CUSO), Mountain America Financial Services. That has enabled the credit union’s mortgage department to spend more time looking for new lending opportunities.
To help it sell properties to a wider market, the CUSO entered a partnership in June 2011 with Green River Capital, an asset-management company that sells properties nationwide. The ability to reach such a vast number of potential homebuyers through the partnership is also something that other credit unions that partner with the CUSO can take advantage of.
Beyond the sheer scope of the market opportunities, one of the reasons why other credit unions choose to work with the CUSO is its commitment to staying on the leading edge of technology, says Jeanie Olsen, vice president of mortgage services for Mountain America CU. The CUSO uses a high-tech system that allows loan officers to make decisions faster and have access through any Internet connection.
One of the ways Mountain America CU has attracted new mortgage business is by offering niche products aimed at members who are upside-down but can’t refinance at lower rates. “One that we just implemented involves helping members who don’t have a Fannie Mae or Freddie Mac loan,” says Olsen. “This portfolio product will go up to 125 percent loan-to-value to help people refinance. Of course, they still need to have a good job and good credit.”
I felt there had to be a better way for us to help people out and stabilize the neighborhoods.
– Daniel Weickenand, President and CEO, Orion FCU
Another strategy the credit union has embraced is making the process of obtaining a mortgage loan an easy and efficient one. In February 2010, the credit union implemented a new electronic processing system that saves members the hassle of having to come into the credit union to go through the mortgage contract. “At the title appointment to sign their mortgage documents, they just sign a signature pad once, and it uploads to all of the documents,” she says.
All of the documents, plus the appraisal and homeowner’s insurance, are then stored in an electronic vault, allowing members the opportunity to access them for the next seven years. Mountain America even provides members with a thumb drive so they can take their documents home with them.
“We surveyed our members, and the feedback we have received has been great,” adds Olsen. “They love the efficiency, ease, and the ‘green’ theme.”
Where NAFCU stands on housing reform
One of the key legislative issues likely
to dominate 2012 is housing finance reform. There is no shortage of
views on this subject, and NAFCU continues to tout its own set of core
principles to members of Congress and the Obama administration as they
consider how to ensure a viable housing market going forward. In brief,
NAFCU’s principles call for:
- a viable, secondary mortgage market, where mortgage loans are
pooled and sold to investors, to ensure the liquidity necessary for
credit unions to create new mortgages for their members;
- creation or continued existence of multiple government-sponsored-enterprises (GSEs) that would perform the essential functions currently
performed by Fannie Mae and Freddie Mac, including purchasing loans and
packaging them for sale to investors;
- explicit, U.S. government guarantees on the payment of principal and interest on mortgage-backed securities;
- uninterrupted access for credit unions to Fannie and Freddie and,
in turn, the secondary market, during any transition to a new system;
- a potential GSE model consistent with a cooperative or a mutual
entities model that provies for an elected board, regulation by the
Federal Housing Finance Agency (FHFA), strong capital standards and
strong regulatory oversight;
- a board of advisors made up of representatives from the mortgage
lending industry, including credit unions, to advise the FHFA regarding
- self-funding of GSEs, with a GSE fee structure that places increased emphasis on quality of loans (not just size and quantity);
- continued operation of Fannie and Freddie, in or out of
conservatorship, so they can honor guarantees at least until they have
repaid their current government debts and made taxpayers whole;
- for now, no full privatization of the GSEs, in light of serious
concerns that small community-based financial institutions could be shut
out from the secondary market;
- reform that takes into account the consequence of any legislation
on the health and reliability of the Federal Home Loan Banks, which have
served as strong partners for credit unions in spite of stress arising
from the financial crisis.
A focus on foreclosure
When Daniel Weickenand became president and CEO of Orion FCU in August 2010, the Memphis, Tenn.-based institution had a loan portfolio with a delinquency rate close to 8 percent, and the majority of that was real estate. “Before I got here,” he explains, “there was a program where, if an individual was in foreclosure, the credit union would refinance the loan at a higher interest rate to get them out of foreclosure. You can imagine how well that turned out!”
Weickenand examined the credit union’s local housing market and saw a lot of investors buying foreclosed homes, then renting out those homes to make money. “I don’t have a problem with that,” he says, “but I felt there had to be a better way for us to help people out and stabilize the neighborhoods.”
To that end, Weickenand helped develop a program for Orion FCU called Home Run, which takes 70 percent of the tax value of a member’s home and amortizes it over 15 years, taking into account electric and other expenses. The credit union then sees if the member can afford that amount in monthly rent.
“If so, we rent it to them for a year,” he says. “After that first year period, we take all of the rental payments and apply it as a down payment against the 70 percent. We will then finance the house. As a result, they walk in with good equity.”
Orion FCU arranges for the program participants to attend a financial education seminar ahead of time so that they understand how the program works and what their responsibilities are.
With our service, we will meet when and where people want, so we may even come to their homes after business hours.
– Barry Stricklin, VP of Real Estate Lending,
The credit union also makes sure the house is livable in the first place. During that first year, the new tenants have to take care of it — almost as if they were the owners. “They have to cut the grass, arrange for someone other than us to fix a hole in the wall, and so on,” he points out. “Of course, we own it for the first year.”
According to Weickenand, the people who are in the program are really excited about it, and it has been working well. Now Weickenand would like to focus on making more people aware of the program. “We need to do a better job at putting the word out. We’ve found that a lot of people who could benefit from the program weren’t aware of it.”
A focus on new business
While a number of credit unions are making key decisions about how best to manage foreclosed property, Texas Dow Employees CU in Lake Jackson, Texas, is focused primarily on building its mortgage portfolio.
Prior to the arrival of Gabe Lopez, director of mortgage lending, a lot of the credit union’s members didn’t look to it for purchase-money transactions. “They looked to us for home improvement loans, home equity loans, and maybe even to re-finance,” says Lopez. “When I came here in late 2009, I felt we should concentrate more on purchase transactions since it could be an important way for us to grow.”
One of the first steps in this endeavor was for the credit union to purchase its own realty company, TDECU Real Estate. “At the time we purchased the company, it was the number one realty company in its market,” says Lopez. “We now have a real estate agent on staff, and we are in the process of hiring more.”
Texas Dow Employees CU also purchased its own title company, called Century Oaks Title. Both are wholly-owned CUSOs operated by the credit union.
“We made these purchases as a natural next step to provide more service to our members,” he continues. “Our department wants to help our members build their wealth through real estate. We do this through owner-occupied homes, as well as through investment property.”
Members are not required to use the credit union’s realty company. When members come in for a loan, if they are not already represented by a real estate agent, the credit union will offer its realty services. It is available to members whether they are buying or selling a home.
Lopez notes that the credit union provides some attractive incentives to get members to use it as a one-stop shop. “If a member works with us as a buyer representative, we will rebate 20 percent of the commission,” he says.
If a member works with both TDECU Mortgage and TDECU Real Estate, and there is an origination fee, Texas Dow Employees CU will cut that in half. “If a member uses our title company, we will give them a $100 gift card,” adds Lopez. “And if a member hasn’t received a quote for insurance, we will allow them to get a quote from TDECU Insurance.”
As a result of its coordinated effort, the credit union is able to attract new members and a lot of new business. In 2008, the credit union had four originators that pulled in $12 million. In 2009, that number grew to $19 million. In 2010, the year after Lopez came on board, he cut down to two originators, who did $32 million in business. They upped that to $48 million in 2011. “This year, we added two more originators, and our goal is $80 million,” he says. “And, in 2011, we only had two foreclosures.”
More focus on new business
Another credit union that is building new business with a “one stop shop” approach is Tower FCU in Laurel, Md., which offers members the services of its own title company and managed realty services.
Barry Stricklin, vice president of real estate lending, explains that when it started the effort about six years ago, the plan was to create a way to make the home-buying process more efficient for members.
“We realized that people didn’t differentiate between the title company and the lender,” he says. “As a result, if the title portion of the process didn’t go well, then the whole process didn’t go well for them.
In fact, Stricklin says when people provided feedback on the whole process, a lot of the things that they downgraded were specifically related to the title side. Tower wanted to get control over that, so it started its own title company — Tower Title Services, which helps streamline the process for members and keep costs down.
“One thing people complained about was having to take off work and go to a title company,” notes Stricklin. “With our service, we will meet when and where people want, so we may even arrange to come to their homes after business hours.”
The credit union also realized that title company fees were all over the map. Tower responded by setting up a low, consistent fee that it quotes to members up front, regardless of what it found during the title search process.
“People didn’t realize that they had the legal right to choose their own title company,” Stricklin continues. “They thought the real estate agent or the seller did that. Since the title company represents them as the buyer, it makes sense that they should be able to choose their own title company.”
As a result, Tower Title Services makes things convenient and cost-effective for members. It has also created additional revenue for the credit union. “Today, about 96 percent of the loans we do are done through our title company,” Stricklin says proudly.
If a member works with us as a buyer representative, we will rebate 20 percent of the commission.
– Gabe Lopez, Director of Mortgage Lending, Texas Dow Employees CU
Tower went beyond just title services, though, expanding to realty services for its members. “In some cases, we found that members weren’t happy with their real estate agents,” explains Stricklin.
Tower is one of the eight credit unions that started the Washington Metropolitan-based wing of CU Realty, a CUSO that licenses out marketing rights to credit unions in different geographic regions. “A member can come to us, and we will provide them with a list of agents, including specific information and qualifications of those agents,” he says. “We monitor these agents to make sure that they provide the right service levels.”
When a member uses one of CU Realty’s agents, that member automatically becomes enrolled in Tower’s Home Rebate Program, which provides a 20 percent rebate on the commission paid to the agent, whether the member is a buyer or a seller.
Since there is 3 percent commission on the buying side and 3 percent on the selling price, the member gets a 0.6 percent rebate on the purchase price of the sale price. “Our members receive an average of a $2,000 rebate,” he says. “They can use it to apply to closing costs, or they can take it as cash after settlement.”
A focus on the competition
No state has been hit as hard by the mortgage crisis as Nevada. Around 60 percent of Nevada homeowners owe more on their mortgage that what their home is worth. But despite this unfortunate situation, One Nevada CU in Las Vegas has been weathering the storm quite well.
According to Greg Barnes, senior vice president of marketing, the credit union sells all of its mortgage loans on the secondary market. “We don’t portfolio any of them,” he explains. “The most important elements of our success over the last year or so are home affordability and record-low interest rates. Homes that used to cost $300,000 five years ago are now selling for $120,00. If you have some cash to put down, it’s cheaper to buy than to rent.”
Strength in NAFCU partnerships
NAFCU + Fannie Mae
Through its longstanding relationship with Fannie Mae, NAFCU has
helped member credit unions expand the appeal of their mortgage product
offerings and services to improve the borrowing process for home buyers.
As both a member of NAFCU and a Fannie Mae-approved seller/servicer,
you gain access to a wide range of mortgage products, time-saving
technology tools, support services, and training resources to help you
serve your members in today’s challenging market.
To learn more about the NAFCU and Fannie Mae relationship, contact
Tammy Trefny at (312) 368-6218 or firstname.lastname@example.org. You can
also visit www.efanniemae.com/sf and select National Association of
Federal Credit Unions under Initiatives & Partnerships.
NAFCU + Prime Alliance
Whether it’s mortgage lending technology, loan documents, mortgage
services, or best practices, Prime Alliance provides comprehensive real
estate solutions for credit unions of all sizes that enhance the
member’s home buying experience. Working with Prime Alliance, NAFCU
members can originate more loans more efficiently than any other segment
of the mortgage industry
To learn more about what Prime Alliance offers, contact Dan Green at 866-726-5102 or email@example.com. You can also visit www.primealliancesolutions.com
But there is another key to their success: One Nevada has an aggressive marketing program that “steals” business away from banks and other institutions that are already in the home buying process.
“We work with Experian to identify non-members who just recently applied for a mortgage loan. We then send them a direct offer to switch to us, pointing out that we’ll waive origination fees if they do.”
We have a pretty aggressive program that pulls business away from banks and other institutions.
– Greg Barnes, Senior Vice President of Marketing, One Nevada CU
In addition, Barnes notes that it usually takes less time to complete a mortgage loan for someone who is taking advantage of the offer to switch. “The people who are already in the process of doing a loan with someone else are usually further along in the process, so we don’t have to start at the beginning.”
The program has helped reduce Nevada’s excess supply of homes, a development that’s been good not just for the credit union, but the state’s housing market overall.
Ultimately, One Nevada and the other credit unions highlighted in this article show that even as the U.S. mortgage market remains a hugely challenging environment, there are smart ways to meet differing member needs, grow business and stay operationally sound. These strategies all emphasize a proactive approach that must be continued as credit unions seek to build momentum on their successes in the months and years ahead.
William Atkinson is a freelance business writer with more than 30 years of experience.