Secrets to Mortgage Lending Success in Today's Changing Market

Daniel Green, Prime Alliance Solutions
December 29, 2004

Mortgage lenders are discovering—or rediscovering—that this year's purchase-money market is different not only from the refinance market, but from past purchase markets. Being chosen as a member's lender from among dozens of options in this new market requires lenders to understand and act on these differences.

Members today are more aware than ever of a wide array of mortgage financing options. Many have closed a mortgage loan with their credit union and, within weeks, have received refinancing offers that promise thousands of dollars in savings.

At the same time, member apprehension about these large financial transactions has never been lower. The recent refinancing booms erased the fear and loathing factor for many borrowers. Some have used online tools multiple times to refinance, so taking out a new mortgage can seem like just one more online banking transaction.

Mortgage Demands Have Changed

What's driving today's change in mortgage demands?

First, members are buying rather than refinancing homes. This trend will continue at least through 2005, the Mortgage Bankers Association of America has predicted.

This prospect is sobering. The 2005 mortgage market is projected to total $1.8 trillion, some $2 trillion less than the 2003 market. While two-thirds of all mortgages were refinances in 2003, in 2005 three-quarters will be purchases.

Second, borrower demographics are changing. Many first-time homebuyers will enter the market in the next several years, often with little or non-traditional credit. Indianapolis-based Eli Lilly Federal Credit Union ($622 million) felt the shift earlier this year indicates Scott Richter, vice president of lending.

Eli Lilly FCU, which has worked in partnership with Dallas-based CU Members Mortgage since 1995, has a seven-year history of 90% approval ratings on mortgage applications. The credit union feared this might change significantly as borrower demographics changed.

In actuality, Eli Lilly FCU maintained an 88% approval rate, a fact Richter credits to using some of the best online tools in the industry.

Eli Lilly FCU and a number of other credit unions served by Dallas-based CU Members Mortgage began using an online mortgage lending solution in March.

"Approval rates have remained high in part because the technology guides the member toward the mortgage loan product that best fits his needs and provides a quick answer," says Linda Clampitt, vice president of CU Members Mortgage. "Gone are the days when members were kept guessing about their mortgage approval. We have the technology we need to provide an answer immediately."

Addressing Member Needs in a Changing Market

Lenders need to offer just the right mortgage product to help new borrowers and to address today's rapidly increasing housing prices.

Prime Alliance and Fannie Mae began working on loan products to do this in early 2003. One such example is the 40-year mortgage. Designed to improve affordability, it's a new option that helps first-time buyers become homeowners. Other products, like the Interest-First mortgage, help address fast rising home prices and member financial planning needs.

Competitive rates will not be enough to cut through the constant barrage of mortgage offers members will continue to receive in this new market.

To succeed, credit unions will need:

-Partnerships to create a service advantage -Tools to offer members immediate approval -Products to meet members' changing needs

"Process and product creativity, combined with our attention to service are the reasons Eli Lilly FCU has made more than $1 billion in member mortgage loans since 1994," says Richter. "Continued creativity will do nothing but increase our ability to lend in the coming years."

Originally published by Callahan and Associates on www.creditunions.com. Reprinted with permission from author Daniel Green, executive vice president of Prime Alliance Solutions. Contact Green at 206-439-5807 or dgreen@becu.org.