LAS VEGAS—Credit unions’ share of the U.S. mortgage market has grown from 2% in 2006 to 8.57% as of March 2017, fueled by trust gained from consumers during the Great Recession and a boom in refinance volume, according to one analyst.
But the game is changing as refinance volume dries up and the market shifts to purchase money mortgages, said Tracy Ashfield, president of Ashfield & Associates, a mortgage consulting firm, during the CUNA Economics & Investments Conference here.
Ashfield cited three dynamics that are affecting credit unions’ real estate lending efforts:
- Housing shortage. Housing inventory is shrinking—the January housing supply was the lowest in history, according to the National Association of Realtors—while prices are rising in almost all markets, and the home ownership rate is near a 50-year low.
- Growing target market. Eighty-three million Millennials are approaching the home-buying age.
- Mortgage refinancing activity is waning, and purchase volume is hot.
Shifting to purchase money mortgages is a different animal, according to Ashfield.
“Gearing up for this isn’t simple,” she says. “The process is much different.”
Refinancing typically involves working with current members via existing processes with minimal time pressures. But competing for purchase business is all about “people, price, product, and process,” she says.
“We’re not to the point yet where purchase lending is highly automated. It’s still a people business,” Ashfield said. “People want high-touch service; you need to work with members more, and you need to meet members on their terms. In the refinance world, it’s less people-intensive—you’re just waiting for the refinance to go through.”
Ashfield said this business also requires credit unions to think about price and products: Will you keep the servicing? Sell to the secondary market? Keep the loans in house? Be more price-competitive with one or more products? Offer low down payment options?
Purchase business also adds people to the process: Seller, buyer, two real estate agents, and possibly other parties who are buying or selling with contingencies, she said.
“There are so many stakeholders,” Ashfield said, “that if my process falls down, it’s a real problem.”
Plus, compliance issues, Fair Lending Act pressures, and changing investor expectations make the whole process more difficult, she said.
“Regulations have really impeded creativity and innovation,” Ashfield said. “They’ve taken some of the brightest minds in credit unions—innovators and strategic thinkers—and have them reading 10,000 pages of regulations to stay in compliance.”
Still, mortgage lending is an important and potentially lucrative line of business for credit unions that have the stomach for it. For those that do, Ashfield offered several strategies for success:
- Keep your foot on the gas. Excess regulation weighs on many mortgage lending initiatives. “But keep going,” she urged.
- Collaborate with other credit unions and related organizations. “We’re better together than alone,” Ashfield said. “Get together and share ideas.”
- Invest in training and staff development. Without it, lenders will be out of touch with the industry.
- Get off the island. Integrate mortgage lending with the rest of the credit union, especially front-line staff. “We’re shooting ourselves in the foot by not involving staff,” Ashfield said. “Explain your mortgage program to branch staff so they can sell it. Ensure that every member service rep can at least ask about members’ business. And train people—they don’t want to look stupid.”
- Pay attention to the competition. “Don’t bury your head in the sand and say Rocket Mortgage and Quicken don’t matter,” she said. “Their business is skyrocketing.
“Mortgage lending has been slow to change,” Ashfield added, “but it’s a new game now.”