BARTLESVILLE, Okla. – Credit unions, like most mortgage lenders, have benefited from the record low interest rates over the past year. But interest rates will eventually start to turn up, and when they do CUs won't just walk away with larger mortgage portfolios, they'll also take with them valuable lessons they've learned about managing their mortgage portfolios. Mark Wilburn, senior vice president and chief lending officer of 66 FCU unabashingly admits that before mortgage rates began their nose dive, the $302.2 million FCU like most CUs tended to "lump" the three areas of mortgage lending – portfolio lending, mortgage banking/second market management, and servicing – under one "mortgage department" umbrella. While that was convenient, he said he's come to realize it's not only an inaccurate perception, it's also an inefficient way to run a mortgage lending operation. "Each of these three areas are really three separate businesses, and they have to be managed in three different ways," said Wilburn. Up until the last three years, 66 FCU was doing on average about $65 million in mortgages annually. For the last three years, the credit union has enjoyed closing $130-$140 million in mortgages a year. It's sold in total about $150 million to Freddie Mac during that time, including most of its fixed-rate mortgages, and it currently has about $100 million on its books. Mortgages used to account for less than half of the credit union's loan portfolio, now they make up 85 – 90% of it. Wilburn attributes that increase to the pervading strong purchase and refinance market, and the relocation business 66 FCU has been bringing in from ConocoPhillips Co. and Tyson Foods. The credit union also went live in May with a strong Internet mortgage product that ties into Freddie Mac's Loan Prospector lending tool. Prior to the installation, members completed the standard loan application Form 1003 that was on 66 FCU's Web site. Once or twice a week, the credit union would search to see if anyone had filed an application, and if they had the CU would print the application out and then complete what Wilburn described as a "painfully excruciating process." The CU's new Internet product allows mortgage applications to be reviewed and approved within 20 minutes. 66 FCU also streamlined its mortgage documentation process and eliminated unnecessary documentation that Wilburn said "let us feel good about things we were doing even if it wasn't necessary to complete the loan." He equated it to "wearing overalls and suspenders to get a job done when all you need are the overalls." Wilburn doesn't naively think that just because 66 FCU did so well with mortgage originations during the last couple of years when rates were unusually low, that the credit union will be able to continue that momentum when rates begin to rise. "If interest rates go up gradually, then we'll be okay. But if they go up as fast as they went down, by a point or more, then we'll have a harder task to deal with," he said. The key to succeeding long term in mortgage lending, Wilburn said he's learned is delineating your business lines and not pricing your products against your competition but basing them on true economics and the revenue and cost functions that are involved. While 66 FCU has been setting interest rates on the portfolio lending side to cover its costs and earn revenue, it prices loans on the mortgage banking side so it can sell the loans at a premium. On fixed rate loans, 66 FCU prefers to lock members into a rate and then turnaround and sell the individual loan to Freddie Mac rather than hold on to it and sell the loans in a pool. That way, Wilburn explained, the credit union avoids getting stuck with a loan that doesn't close and wind up paying a mandatory delivery fee on the loan because 66 FCU committed to sell it. But Doug Foster, president of Doug Foster & Associates Inc., Ponte Vedra Beach, Fla. said assuming that selling mortgages at a premium is the most profitable pricing model is incorrect. "Credit unions can wind up shortchanging themselves if they don't understand the pricing model and their revenue and expense factors. You can sell at a discount and still make a profit if you correctly understand your revenue and expense elements," said Foster. Foster is a strong advocate of mortgage lending being three different lines of business "each with their own risks and different revenue and expense structures." He added that "when lenders combine all three of the areas together, they never really get an accurate picture of how their business is doing. If they separate them out, they're able to make better pricing and overall decisions." -

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