This year could easily be the point in time for the credit union industry to take a larger stake in the mortgage banking market. For too many years, credit unions have been minor players in regard to origination and secondary marketing. This has been due to a combination of factors, not the least being that the majority of credit unions happen to be on the smallish side and practice a strict brand of conservative lending.
But now, there are several factors that weigh in favor of a new wave of credit union mortgage lending, not the least being the collapse of the larger competition that dominated the marketplace. This can also provide an opportunity for credit unions to reach new borrowers who may not have been aware of this sector.
In this month's issue of Secondary Marketing Executive, Bob Dorsa, president of the American Credit Union Mortgage Association, stresses the need for credit unions to reach out at this crucial period.
‘We tend to preach to the choir and overlook the tremendous reservoir of new blood that could enhance the credit union community,’ he says. ‘Today, 96 percent of existing credit union members obtain mortgage loans elsewhere. If we introduce ourselves to new people, we might fare better in getting a better percentage of overall market share. We need to encourage existing members to take a new look at credit union membership to help with their housing and mortgage needs.’
Also quoted alongside Dorsa is Lisa Williams, director of CDCU Mortgage Center LLC, a division of the National Federation of Community Development Credit Unions. She believes the time is right for this niche market to actively promote itself.
‘Credit unions now have a significant opportunity to fill the space where mortgage brokers and subprime lenders once dominated,’ she says. ‘Credit unions have always focused on relationship marketing and providing financial counseling to members. They have a long-standing reputation as trusted, ethical lenders to people of modest means.’
However, the realities of the current marketplace may scare many credit unions away from origination. At the end of December, the National Credit Union Association (NCUA) sent a letter to its member institutions urging them to work with borrowers who are facing problems in their mortgage payments.
‘We continue to urge you to work with your borrowers when possible,’ writes Michael Fryzel, NCUA chairman. ‘Prudent workout arrangement can be in the best interest of both credit unions and members.’
Fryzel's letter also addresses foreclosed and repossessed assets (FRA). ‘The current financial market has forced credit unions to consider the effects of carrying FRA on their statement of financial condition,’ he continues. ‘[Credit unions] should put in place policies and procedures that establish an acceptable level of risk…in order to best protect the safety and soundness of your credit union.’
For credit unions that are not currently involved in mortgage lending, the notion of having to carry FRA on their books is not much of an incentive for future mortgage activities. Indeed, the seemingly endless news regarding rising foreclosure rates may encourage many credit unions to congratulate themselves for not having any involvement in mortgage banking.
But that train of thought could be heading down the wrong track. Independent community banks have been active mortgage lenders, and they have largely avoided the problems that faced the money center monsters simply by practicing traditional, conservative lending. Their example should be a focal point for credit unions looking to succeed in mortgage banking.
The aforementioned Secondary Marketing Executive article also quotes Williams from CDCU Mortgage Center on an important aspect of mortgage banking that could further benefit credit unions: the fact that they are not in the business of handing off the servicing of mortgages to indifferent third parties.
‘One advantage that credit unions have historically had in their mortgage lending operations, regardless of who they sell their loans that they retain their servicing,’ she observes. ‘That relationship with their members is always treated as priceless.’
Whether the credit union sector agrees with that notion will remain to be seen as the year progresses. Hopefully, credit unions that are not currently in the mortgage banking environment will be able to step up and fill the voids with their distinctive brand of financial services operations. If anything, this industry needs focus, common sense and sound lending practices.
– Phil Hall, editor, Secondary Marketing Executive.
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