Conventional wisdom says mortgage-issuing credit unions, like the rest of the mortgage industry, will see a downturn this year. It also says that credit unions don't really issue many first mortgages, that refinances constitute the bulk of their mortgage work and that they really aren't set up to handle many purchase loans.
But John Reed, the CEO of CUSO Mortgage and the $210 million Maine Savings Federal Credit Union, doesn't pay much attention to conventional wisdom.
"We've had the best first quarter in years," Reed crowed. He noted that CUSO Mortgage was founded by Maine Savings and other credit unions more than 17 years ago, so there are a good many years with which to compare the results.
The CUSO provides mortgage-issuing services to about 35 or 40 of the state's roughly 70 credit unions, offering conventional fixed- and adjustable-rate mortgages, VA and FHA loans, rural housing loans, jumbo mortgages, loans in conjunction with the Maine State Housing Authority and small business loans. The CUSO also offers mortgage services to a small number of people who stumble across the CUSO's website and are not credit union members.
"Maine has a lot of credit unions," Reed said, adding that about 60% of the state's residents belong to at least one credit union. "So it's not often that we find someone who is not a credit union member. But by law we can serve them, so we do."
Reed credited a combative attitude toward the mortgage outlook for this year with giving the CUSO some of its momentum.
"We had a planning meeting last year where we looked at the forecasts," he said. "We saw that mortgage issuing was supposed to be down generally and that mortgage refinancing, which was the bulk of credit union mortgage work, was supposed to be especially down. But in the middle of all the downturn we saw that first mortgage volume was supposed to be up a bit, something like 5%."
So instead of interpreting the forecasts as predicting a slowdown, Reed and CUSO Mortgage decided to let them point the way toward growth opportunities Reed was convinced were out there, particularly by increasing the percentage of the CUSO's loans that were first mortgages, what the industry refers to as purchase money.
Getting more Maine residents to think of credit unions and CUSO Mortgage as an early or even first choice for mortgage lending meant thinking more like home purchasers. That led the CUSO to develop and launch the CU Promise loans.
"We looked at what were three things that home buyers really wanted to happen during their home financing experience and which bank lenders are never able to offer," Reed said. "Those three things formed the core of the CU Promise loans because we promised to make them happen when bank mortgage issuers almost never do."
When a Maine resident applies for a CU Promise mortgage loan the CUSO or a credit union that offers the loan pledges that the borrower will receive three things: an approval or disapproval decision within one day of applying, the ability to set a date for closing the loan and the assurance that servicing will never be sold out of state for the life of the loan.
Reed said that research had demonstrated that mortgage borrowers especially valued these three parts of the home financing process when they went well and dreaded them going badly. In fact, some homeowners surveyed had stories dealing with postponed closing dates, very long decision times and selling their loan servicing to out-of-state firms that didn't understand many Maine residents' unique perspectives on their loans and homes.
And borrowers aren't the only ones who like the loan, Reed said. Realtors have also been enthusiastic about it, not least because a guaranteed closing date gives them a guaranteed payday too.
Whenever a CU Promise loan's guarantees are broken, the borrower receives $500, but Reed said that happens very rarely and that the CUSO generally meets its deadlines-and he acknowledged those deadlines could be difficult even for other CU mortgage lenders to meet.
For example, in order to make sure the credit union meets the closing day promise, the CUSO generally has all the closing loan documents ready and distributed to all parties for review a full 48 hours before the closing day in order to catch any potential problems in time.
Reed also said the CUSO took careful steps to craft a product that all of its credit unions would feel comfortable offering.
"Credit unions can be sensitive about their brands and their brand identity," he noted, "so we wanted to choose a name and position a product that we could market around the state in a way that drew people to credit unions generally but not to any one credit union and not to us specifically."
The technique worked, Reed said. The CUSO mounted an ad campaign across the state that included print, radio and television spots and helped the CUSO reverse its previous ratio of purchase money to refinance mortgages. Last year, purchase money accounted for just under 20% of the mortgages that the CUSO issued, Reed said. So far, through the first quarter, purchase money accounts for between 50% and 60%, he added.