By Paul T. Pouliot
Credit union market share of mortgage originations grew from 2.6% in 2007 to more than 8.6% by the first half of 2015, according to CUNA, and credit unions are taking different approaches on how to market for new mortgage activity.
Credit unions have been active in the Dealer Direct Auto Financing program for many years. Through this program, borrowers interested in a car purchase join the respective credit union to secure financing for a new or used automobile.
This might be the only relationship the member has with the credit union, but credit unions are now data mining this group to market mortgage applications for purchase or refinance opportunities. This approach varies from flyers explaining the types of mortgage products available to directly contacting members about other products.
Savvy credit unions have been successful in attracting these members to use products not previously considered. Rockland Federal Credit Union in Massachusetts has regularly reached out to members who have secured auto loans. “Many of the members who apply for mortgages indicate that they thought of us because they had good experience in obtaining their auto financing with us,” explained John Speakman, senior vice president of lending at Rockland FCU.
This growth offers credit unions like Rockland FCU the opportunity to either keep the asset on their balance sheet or deliver it into the secondary market while retaining the mortgage servicing rights. Many are turning to the Mortgage Partnership Finance (MPF) Program under the Federal Home Loan Bank (FHLB) System for assistance in learning about the secondary market.
A One-Stop Shopping Center
The MPF Program is a “one-stop shopping center” for the needs of credit unions. The MPF Program offers an array of mortgage products, from conventional fixed-rate conforming and high balance conforming loans, to government loans as well as jumbo loans up to $2.5 million.
Rockland FCU has strategically used the MPF 35 product, which allows participants to share the risks associated with home mortgage finance with the FHLB. The FHLB manages the liquidity, interest rate, and prepayment risks of the loans while the credit union manages the credit risk of the loans.
“The MPF product fits well with our strategic goal of building a servicing portfolio and retaining the member relationship. Members come to us for their mortgage financing, as well as other products, because they are looking for a ‘high personal touch’ relationship. They want their loan originated and serviced locally,” Speakman noted.
He added, “Through the MPF Program we’ve built our servicing portfolio and increased income by sharing the risks with FHLB Boston. We consider ourselves prudent lenders and the program allows us to benefit both in the areas of member service and profitability. MPF 35 has enabled us to lower the impact of the risk sharing by more rapidly growing the ‘first loss account’ and profit from the higher Credit Enhancement fees when the loans we do sell under this program perform well.”
Paul T. Pouliot is First Vice President and Mortgage Manager at the Federal Home Loan Bank of Boston, has been with the Bank for 17 years and in the mortgage banking industry for more than 45 years.