The Coming Decade of Mortgage Lending

Joe Brancucci, Prime Alliance Solutions, Inc.
April 15, 2005

Here's a question every credit union lender ought to know the answer to: Which industry has driven the U.S. economy for the past ten years? If you answered “housing,” you're correct.

Housing in the United States is booming. It's survived every economic hiccup of the last ten years—unemployment, recession, international financial woes—and it shows no signs of slowing. Housing construction over the next ten years is, in fact, expected to exceed that of the last ten. This is welcome news for credit union lenders, especially credit union mortgage lenders.

Housing finance will boom right along with the housing market. Yet credit union mortgage lending during the next ten years will only faintly resemble our practices of the last decade. Think of it this way: Purchase-money lending is the multi-faceted counterpart to the one-dimensional nature of refinancing. Consequently, “strategy-layering” will differentiate highly competitive lenders. Here are five strategies that, when used together, will spell success in the next ten years:

1. Market housing, not mortgage lending. When it's time to buy a home, homes are what are top-of-mind, not mortgage loans. Marketing messages must be highly targeted, too. First-time homebuyers will be nervous about affordability, as will members moving in from lower-cost areas, for instance. Buyers of second homes may not be aware that their credit union provides this type of financing. Members must be educated about your capabilities and your expertise.

2. Develop programs to serve minorities and new entrants. The minority share of households is predicted to rise to 34% by 2020. Credit unions will have to become “of” their communities, not just “from” them, to serve this important market. This means becoming active with community groups, participating with local housing authorities and financing developments, to name a few ideas. Financing homes for first-time buyers is just the beginning, of course, to a long-term financial services relationship that's mutually rewarding.

3. Diversify financing options. Thirty-year fixed rate mortgages have their place. For many homebuyers, especially first-time and low-income buyers, however, this old standby is neither the right choice, nor is it affordable. Forty-year fixed-rate loans, hybrid ARMs, interest-first and affordability products are what successful lenders will be offering.

4. Build construction loan programs. If your credit union has shied away from construction lending, now's the time to embrace it. New housing starts of single-family homes in 2003 stood at their highest level in over 40 years. Not since the 1970s when baby boomers began forming their households have starts been so strong. Get your systems in place, train your staff, add lending programs, and consider engaging with a partner to enter this important lending segment.

5. Embrace the real estate community. Many attempts have been made over recent years to build successful credit union real estate programs. Many failed to produce results because of weak value propositions that were not compelling for any of the parties in the transaction: member, credit union, real estate agent. The ideal program creates a win-win-win. While not an easy task, it's essential if your credit union expects to grow its share of the purchase-money mortgage market.

Mortgage lending is the primary credit union opportunity to result from a sustained growth in housing. It will, in fact, be close to a $2-trillion dollar per year business for the next several years, most of it purchase-money. If you're interested in learning more, read Harvard University's Joint Center for Housing Studies report on the “State of the Nation's Housing 2004,” available free from its website. Prime Alliance 's credit unions will be strategizing on this topic during their annual symposium this June. For more information visit www.symp2005.primealliancesolutions.com.

Joe Brancucci is president of the 2005 CUNA Lending Council Executive Committee, as well as president and CEO of Prime Alliance Solutions, Inc. Reprinted from creditunions.com with the permission of Callahan & Associates.