The NAFCU Journal: This Home Brought to you by your Credit Union

Relationships, trust and convenience drive success for credit unions taking the plunge into the home finance market.

By Carolyn Kimmel

The NAFCU Journal - This Home Brought to you by your Credit Union

When Houston resident Lisa Trusty decided to build a house with her mother and sister, they knew their home loan needs would be unique, and they worried that most lenders wouldn’t offer a loan to three borrowers.

Enter Houston-based Texas Dow Employees Credit Union (TDECU), which mapped out a homeownership plan and delivered a customized, easy and affordable homebuying experience.

“The TDECU Mortgage team truly cared about us, our life and our journey,” Trusty says. “They even closed on our loan a week ahead of schedule.” 

Although credit unions historically have not been big players in the home finance market, that’s changing as they recognize their biggest strength — customer relationships — can go a long way toward easing homebuyers’ apprehensions about entering into what is probably the biggest investment of their lives. 

“Buying a home should be an exciting time in your life, not a fearful, anxious time,” says Brandy Phillips, vice president of mortgage lending at TDECU. “We want our members to relax and sleep well at night, knowing we’ve got their backs.”

Jerry Anderson acknowledges the angst as well. “People are excited to go out and look at possible houses to buy, but no one wakes up and says, ‘I can’t wait to go shopping for a place to get a mortgage today,’” says the vice president of residential lending for Alliant Credit Union, based in Chicago. He points to local, less intimidating credit unions as an antidote. 

A Built-In Market

One of the biggest advantages credit unions have is that members already trust their credit union more than an unknown mortgage lending company or big bank. That means marketing isn’t a heavy cost, as credit unions can draw on the name recognition and members they already have.

“We market through our website and our branches with brochures and standup boards and just by talking with members,” says Patrick Zarifian, senior vice president and chief lending officer at California Credit Union. “With our account-opening system, we’ll ask members if they know we do mortgages and whether they are interested.”

Since merging with North Island Credit Union in 2017, San Diego-based California Credit Union is putting more emphasis on mortgage lending, with an increase in production from $285 million in mortgages in 2018 to $507 million last year, Zarifian says. They also have dedicated loan officers who establish relationships with real estate agents, who in turn market to members.

Alliant, in the mortgage business for more than 20 years, is in the process of testing a new marketing tool related to home loans. “We have a program we are testing that will notify us if a member’s property is listed,” Anderson says. “Then, we could reach out to our members with the opportunity to use our services.”

Some credit unions also make use of rewards programs. The Alliant Home Rewards program pairs prospective homebuyers with a local real estate agent and a mortgage loan officer to act as guides in the buying and selling of their current home. The program will give homebuyers a cash rebate of up to $6,500 when they buy or sell, and up to $13,000 if they buy and sell through the program.

Seize the Day

Prior to the coronavirus pandemic, this year’s economic forecast was robust, and there was opportunity for credit unions to increase their footprint in the home finance market. The Mortgage Bankers Association’s 2020 Commercial Real Estate Finance Outlook Survey predicted that overall mortgage and lending would increase in 2020, buoyed by low interest rates, strong property markets and rising property values. While the impact the coronavirus will have on the market is unclear, several credit unions had prepared to take advantage. 

“We’ve been building our mortgage portfolio for more than 20 years, but we’re being a little more deliberate [this] year because we want to continue to grow,” Phillips says. “We want to focus on awareness, because many people still don’t think of credit unions for a mortgage. We want to let them know, not only do we do them, but we’re really good at both meeting a buyer’s traditional mortgage lending needs and helping those with customized needs, like Lisa Trusty.”

For example, Phillips says that, for mortgage loans, TDECU has documents out to title in 18 days or less 50 percent of the time, something the credit union highlights. “Our people and our processes differentiate us,” she says. 

The NAFCU Journal - This Home Brought to you by your Credit Union - Brandy Phillips, VP of Mortgage Lending, Texas Dow Employees Credit UnionDespite notable forward movement, the fact remains that credit unions account for less than 10 percent of U.S. first mortgage originations. That leaves plenty of room for growth. Credit unions have not taken advantage of their trustworthy reputations coming out of the Great Recession of 2008 as they could have, Anderson says. But it’s not too late.

“Most mortgage companies were in it for the money and didn’t care what happened if the customer couldn’t make the payments, whereas credit unions came through relatively unscathed,” he says. “With low interest rates bringing people back into the market now, it’s a second chance for credit unions to grow and emphasize that relationship we have with our members.”
  
Playing to another strength, credit unions can highlight the fact that they may lend to people who might not get approved elsewhere.

The NAFCU Journal - This Home Brought to you by your Credit Union - —  JERRY ANDERSON, VICE PRESIDENT OF RESIDENTIAL LENDING, Alliant Credit Union

“Why use a credit union? Your story is heard, versus being a number or an application,” says Zarifian. “If there are some issues with your credit, we hear your story and try to work with you. That puts the applicant at ease. Being a credit union, we give a more personalized touch to the applicant and, internally, the relationship between underwriters and loan officers works to the applicant’s benefit and makes the process smoother and faster.”

At a credit union, mortgage loan decisions aren’t made via some off-site corporate checklist, but right where the applicant lives. “Our decision process is at the local level,” Phillips says, “and we have the ability to create products we keep in our own portfolio.”

The ability to offer things like a portfolio product with no required down payment, or only 3 percent to 5 percent down with a Fannie Mae or Freddie Mac loan, makes a credit union an attractive option, Anderson says.

And then there are the ways a credit union takes extra steps to ensure the move to homeownership is truly viable for its member. “The last thing we want to do is put people in a home they may qualify for but can’t afford,” Anderson says. “For example, the qualifying process uses gross income, but you don’t get paid your gross income. We look together at what someone is really bringing home and what kinds of reserves they have.”

A realistic pre-qualifying check ensures the best outcome for a successful mortgage, executives say. And education is an important ally in making sure members won’t default on loans. Some credit unions, such as TDECU, hold homebuyer seminars for members to learn more about buying a home and getting a mortgage. Excellent customer service and  communication are keys to a smooth homebuying process, and for credit unions, that close relationship continues long after the closing, as the  member stays connected through  everyday financial dealings.

“If they have mortgage issues later, they can easily just walk in and talk to us or call us,” Zarifian says. “Members took their loan with us because they trusted us, and we want to honor that.”

Ready to Take the Plunge?

For credit unions just dipping their toes into the waters of the home finance market, here are some tips from those already doing swimmingly.

1. Get your ducks in a row. Make sure you have the structure and staff in place to ensure success, from the origination process through to — and after — loan approval and closing.

“You can’t expect to do it well with just your existing consumer lending staff — you have to commit the resources that it demands,” Zarifian says. “You’ve only got one chance to do it right. If you commit to a 30-day turnaround on the loan, make sure it’s done in 30 days, or you’ll get a bad reputation.”

The NAFCU Journal - This Home Brought to you by your Credit Union - PATRICK ZARIFIAN, SENIOR VICE PRESIDENT AND CHIEF LENDING OFFICER, CALIFORNIA CREDIT UNION

2. Start with the familiar. It’s best to start out with your own members and perfect the process before you expand your base, credit union executives say. 

“Especially if you are a smaller credit union — $50 million to $100 million — it’s extremely difficult to enter the mortgage market because there is a compliance burden, and the process technology is expensive,” says Anderson, who recommends partnering with a third party to share the upfront cost. 

3. Invest in marketing. Many people still think of credit unions only for auto loans or personal loans, so spread the word on the other types of loans you handle. And don’t forget the power of social media to tweet a catchy reminder or post an Instagram picture. “Use of social media as a tool is continuing to evolve, but it’s a great channel for awareness,” Phillips says.

TDECU also makes it a point to volun-teer in the community to raise aware-ness of their presence as a financial ally. 

“Hopefully they will think of us as the place to come for help,” Phillips says.

4. Harness technology to work for you— and your members. As important as relationships are, many prospective homebuyers start their mortgage search by themselves online, so it’s imperative that credit unions make use of existing technology to ensure a competitive presence in those virtual spaces.

“We have deeply rooted, loyal customers, but the younger generation especially is shopping around and often online,” Zarifian says. “Whoever makes the first call back to them may end up being the one to process the loan, so it’s important to make a conscious effort to get back to them quickly.”

Millennials who are used to banking online also expect to conduct their mortgage business online, he says. California Credit Union recently partnered with a new vendor to provide mobile access to apply for a mortgage, correspond with the credit union and submit paperwork by simply taking a picture with a cell-phone rather than scanning and emailing documents. 

The TDECU Mortgage Simplified app is front and center on the credit union’s home loans webpage, promising all the tools needed to “Make Home Happen” and giving members the ability to get started quickly and stay updated and engaged, Phillips says.

The online process is only expected to heighten with more online notaries, and the capability for electronic signatures and e-closings will replace the sit-down-and-sign-your-life-away stack of doc-uments traditionally associated with a mortgage signing, Anderson says. “Credit unions will need to jump on this as soon as it’s available, or lose business to others that do,” he says.

Technology can streamline the process for the lender as well; for example, a work number can be used to verify employment and income electronically. California Credit Union is in the process of rolling out a streamlined asset verification system in which, if members opt in during the verification process, the credit union can access their bank statements automatically. 

5. Keep an eye on the financial horizon. Pay attention to daily economic indicators, and respond accordingly, Anderson says. “Everything may be booming now, but are we positioning ourselves to withstand a recession where interest rates may drop or members may lose their jobs?” he says. “If indicators go that way, it may mean tweaking our loan guidelines or reducing our maximum loan-to-value ratio.”

Along with that, executives advise keeping tabs on regulatory changes coming down the pike, such as the proposed exit from conservatorship by Fannie Mae and Freddie Mac. The secondary mortgage market remains an important one for credit unions because it allows them to diversify risk and fund more mortgages while retaining servicing rights.

“If Fannie Mae and Freddie Mac go independent, that will have a major impact on the market,” Anderson says. “Without backing from the federal government, mortgages could cost more for borrowers, or smaller credit unions might not be able to carry them in the portfolio.”

Whatever the future, a feeling of engagement, even in these digital days of ultraconvenience, still ranks high on a homebuyer’s list of must-haves, and credit unions are perfectly poised to  meet that need.

“Making homebuyers feel important in the process is key,” Phillips says. “They may not be our only customers, but we want them to feel like they are.”

Carolyn Kimmel is a freelance writer and editor based in Pennsylvania. 

This article was published in the May-June 2020 edition of The NAFCU Journal magazine. Want to receive The NAFCU Journal in your inbox? Update your email preferences.

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