The $419 million Sound Credit Union went live on March 2 with LendingTree, which connects consumers with multiple lenders that compete for their business. The credit union will offer its home equity loans on the company's Web site to consumers in the Tacoma, Wash. market, the financial institution's home base, said Carl Roer, vice president of lending.
Sound CU offering home equity loans "during a time of greatly diminished availability of such products is a win for the consumer," said Robert Ross, divisional sales executive at LendingTree. When asked why the company is now partnering with credit unions, Ross said it was because of their "financial strength, unique lending programs and a shared focus on customer service and satisfaction."
The troubled housing market has led to some lenders scaling back their service at Charlotte, N.C.-based LendingTree, which has opened up opportunities for credit unions, Roer said. Still, Sound is taking a deliberate and slow approach to offering loans online.
"We don't want to be inundated where we can't offer good service. Also, the key to this is cross selling other products and services. If they do just the one loan, it won't be as profitable. In this environment, lending is getting challenging. We can cherry pick opportunities."
Since its launch in 1998, LendingTree said it has facilitated more than 25 million loan requests and $185 billion in closed loan transactions. It works with more than 200 financial institutions. Lenders can also offer refinanced loans, lines of credit, personal loans and credit cards through the site.
Roer said Sound became interested in partnering with LendingTree last November when the company gave a presentation at a Credit Union Real Estate Network meeting. What sealed the deal was the ability to set the criteria for the type of loans it sought, he recalled. The credit union decided to narrow its geographic boundary to Pierce County in Washington, and stay within certain credit score and loan-to-value thresholds. Even though Sound is chartered to serve the entire state, it wanted to limit its scope. Cities like Spokane are not doable now because the credit union doesn't have an appraisal network there, said Caleb Cook, the credit union's lending manager.
"LendingTree said their biggest need was with home equity loans," Cook said. "We're pretty competitive with first loan originations. Looking at our rates, compared to banks, we were among the best [with home equity loans]."
Sound is competing squarely with Bank of America, Wells Fargo and at one point Washington Mutual before the bank's acquisition by JPMorgan Chase, Roer said. Small community banks are just as competitive, Cook noted. Even though Sound has offered mortgages for at least 20 years, it's never had the big advertising dollars to stomp with the big boys, Cook said. Knowing that LendingTree spends $125 million each year on television ads will help Sound bolster its presence.
"To have access to that kind of marketing will help us with economies of scale," Cook said. "We couldn't do TV on our own. We just couldn't afford it."
Sound will pay a cost to LendingTree and an affiliate company for every closed loan. Roer said after doing a financial analysis on the profitability on home equity loans, it was determined that the credit union "was better off doing loans rather than investing in them" given the low-rate environment. Sound's total annual account profitability per home equity member is $1,108, he added. Its annual profit per home equity loan net of all expenses, including credit union overhead, is $489 as of February data.
"The more significant marginal annual profit per each additional home equity loan is currently $856. That is how we plan to have the LendingTree home equity loan program be profitable," Roer said. "We have an on-boarding program for all new accounts. Through our on-boarding program plus the involvement of our branches, our plan is to attempt to convert these new LendingTree accounts into full-service members."
Meanwhile, Sound's employees underwent a staff training session on the LendingTree platform nearly two weeks ago. At press time, Roer said the credit union received its first lead.
Ross said while LendingTree has not launched any specific initiatives targeted at the credit union industry, it is "actively looking to add more to its exchange." In February, the company launched a reverse mortgage search and on March 2, announced new, simplified filter technology for its lending partners.
"Our new targeting capability and filter offering is built in alignment with mortgage industry product guidelines. Within minutes, a lender can set up their filters and begin serving potential customers that fall within [Federal Housing Administration], conforming prime segments, as well as nine additional product groups that the system has available," said Bob Harris, president of LendingTree Exchange.