Credit Unions Shine in Mortgage Market

CU360
October 5, 2009 | COMMENTS

The role credit unions have played this year in residential mortgage origination has expanded so dramatically they could be called the home finance industry's "best supporting actor," according to Origination News.

Federal credit unions alone have seen their combined share of first- and second-lien housing finance volume, including home-equity lines of credit, nearly double in the past year. In 2008, they represented 6.19% of the market, up from 3.62% in 2007, according to data compiled by MortgageStats.com and the National Credit Union Administration.

Mortgages are "a good opportunity for the credit unions," says Jay Loeb, vice president of strategic development for field-services firm National Creditor's Connection. But those eyeing opportunities in the space should "be sure on the servicing side they know what they're getting into," adds Loeb, whose company's president and chief executive has roots in the credit union servicing business.

The reputations of some other large players who made aggressive loans during the market's boom have been tarnished during the market's bust, and credit unions' book of business reflects this. At some credit unions, nearly half of refinance volume has come from borrowers who previously had loans with other lenders. The refinance business, however, could be bolstered by more purchase activity as first-time buyers come into the market taking advantage of federal tax incentives.

Credit unions tend to enjoy a relatively better reputation than many in the residential finance business, notes Origination News, and generally pursue conservative and low-risk strategies. Some have chosen to retain servicing rights, sell only to Fannie Mae and Freddie Mac, and avoid holding loans in portfolio due to interest rate concerns.

Also an advantage for credit unions is that the nature of their member-based services inclines them toward the close borrower contact today's loan resolution efforts often call for, says Loeb, whose company's specializes in "door knock" contact with distressed borrowers.

"People are looking for people they can trust to originate a mortgage," adds Les Parker, president of Parker & Co., a mortgage industry advisory firm that works with credit unions, among other clients.

As is the case for other lenders, some federal policies are benefiting credit unions but others add mortgage-related challenges to the regulatory landscape. For example, the Home Valuation Code of Conduct that Fannie/Freddie lenders must now follow in obtaining appraisals has resulted in redesigns of workflow and delays in appraisals. "The costs of implementation are not trivial to our members," notes one credit union lending executive.

Compliance is something credit unions and other mortgage market participants will likely have to be "very aggressive" about going forward, says Pete Radike, originations product manager in technology provider Fiserv's originations and automotive solutions group.

Credit unions large or small are likely contending with operational challenges relative to the scalability of their platforms. This sets limits on the extent to which they can grow their mortgage origination volume. There are "lower-cost, top-tier technology products available" to address this, notes Parker, but many smaller players are used to legacy systems that are hurdles in moving to newer automation.

Electronic lending initiatives offer multiple benefits, according to Kim Weaver, product manager for secured lending platforms at Fiserv. These include faster transaction times and lower costs, member appeal, and the ability to better manage heavy volumes. Loss mitigation technology also is available to help control costs and better manage workflow if work volumes increase.