Pacific West Escrow Brings CU's Escrow In-House, With Room for Revenue
The escrow company came into full operation in January 2008 to bring LAFCU's business completely in-house. The credit union had its own internal escrow unit for refinances but was sending purchase escrows to a third party.
Despite big drops in the value of California homes, LA Firemens still originates more than $100 million in mortgages each month, said Richard Romero, Pacific West president/chief operations officer at the credit union. Like most lenders, it sells the majority of its fixed-rate mortgages to the secondary market.
The credit union turned a profit in 2008, according to California Department of Financial Institutions year-end data, recording $1.9 million net income as of Dec. 31, and 9.88% net worth.
A lack of control over the quality of the transaction and revenue potential were the primary reasons behind the investment, which did require some new hires.
The credit union's field of membership is a good fit: currently employed and retired firefighters, most of whom are highly paid and responsible professionals who use mortgages as a tax reducer. Firefighters also value integrity, safety and soundness in a business, Romero said.
LAFCU President/CEO Mike Mastro echoed that sentiment, saying, "Pacific West Escrow epitomizes what has set credit unions apart in the financial industry for years-excellent member service and an attention to financial safety."
In fact, firefighters are such tough customers, Pacific West Escrow is approved by California's Department of Corporations, which regulates and scrutinizes transactions more closely than escrow deals handled by a title company.
"Our members are very big into integrity and safety, especially with all mortgage-related scams going on right now," Romero said.
The new company has struggled, Romero said, because of the poor economy. However, it's also "lean and mean," with the "goal to be prepared once markets turn around." Many Southern California escrow companies have gone out of business since the real estate market crash, he said, leaving the field wide open.
Though Pacific West currently only provides escrow services for mortgages originated at LAFCU and credit union members, as an owned entity of the credit union's holding company it can process escrows for other credit unions. LAFCU's employment charter also reassures potential credit union clients that it won't steal or cross sell members, Romero said.
"In a time of cost cutting, if a credit union is paying staff to process escrows, they could divert that resource to us and use that person to fill more function that's of more value to the credit union," he said.
Romero said he has received interest from other credit unions to process escrows, but HUD policies prohibit escrow providers from paying an incentive to lenders. That makes it difficult to lure a credit union from its current escrow provider because Pacific West doesn't have much to offer besides safety, soundness and service.
That being said, Pacific West Escrow does compete well on price, and posts its rates on its new Web site to prove it.
"When we first launched, we wanted to be extremely price competitive," Romero said. "But, little by little, we realized members cared less about price and more about who we are. But we threw it out there anyway because we are so competitive, sometimes half the price of other escrow providers."