For the past year I have noticed a continuing theme: loan volume reported by credit unions is dropping. I have read many different variations on the theme. Some experts have merely noted loan volume has been decreasing or sinking and expect it will recover. Others are seeing it reach such dangerous levels that may impair the future for many credit unions.
At the same time, I know most credit unions do not seem to view helping their members with home loans to be a core strategy. I am among those who have been screaming at the top of our lungs promoting real estate as a key strategy for credit unions. Yet only about 25% of credit unions succeed in the home finance market. Refinances have fallen off dramatically. I say it is time for us to engage the most important demographic group, the first-time homebuyers.
Recent studies suggest about one-third of all new home purchases are financed by the use of a loan secured by the FHA. Interestingly enough, George Washington University Professor of Finance and Chairman of Center of Real Estate and Urban Analysis Robert Van Order concluded that "now is a good time to reexamine FHA’s market both because it is not clear as public policy that we should be insuring low down payment loans for higher income borrowers and because there are very serious questions about FHA’s capacity to carry large market share successfully."
"For nearly 70 years, FHA’s market share has expanded and contracted as necessary," he wrote. "FHA’s history does not suggest that it needs to insure half the mortgages in the market. If it expands beyond its capacity, it risks being unprepared to anchor the housing market should we suffer another economic collapse." Should we take a lead from Van Order’s conclusions?
The question becomes should credit unions seize this opportunity to define and develop mortgage loan products compatible with the needs of the market segment they seek to serve or should they reach a defensible conclusion to abandon their members’ needs. If this seems a bit brash to you, so be it. I find the pure fact than on average only 5% of existing credit union members obtain a loan at a credit union is the primary reason we are losing loan volume. If the credit union ceases to become relevant as a provider of financial products and services to its members (including the most important product of them all, a home loan) they deserve to face the consequences. Millions of homeowners are dissatisfied with the service, fees or rate on their home loans but simply do not know credit unions are an alternative. How can this be so?
Many people I speak with are not convinced we need to reach out strongly and aggressively to win over the nation’s Realtors. Instead many reply, "We educate our members," but that is far less than a strategy that is working. With a 5% market share, that approach isn’t enough.
Whether you agree or disagree on the Realtor strategy there is a much bigger issue here. If your credit union does not offer your members and people living in your community who are not yet members, competitive solutions for home loans, how do you see the credit union’s relevance in your members’ future?
There are many options. From where I sit, I see about 500 credit unions that have all of the attributes to be considered a "professional home loan originator" if there were such a designation for financial institutions. There are also dozens of CUSOs that also fit that class, and finally there are a handful of quality loan origination affiliation companies working with credit unions that can handle the tasks. There simply are no excuses in my opinion for the low market share.
Granted in any of the aforementioned scenarios there are risks and work to do. Compliance challenges and regulations abound, but we need to find a way to deal with them, not avoid them.
A few years ago we discussed the need for a single person in every credit union with the responsibility to make home loans an integral part of the credit union, the Housing Czar. A few have gone that route. It is relatively simple but does require a few very serious actions. First, the entire organization, from the board of directors to CEO and CFO and the leadership in marketing and communications must all be on board and work for lofty results.
Take the first steps: identify the needs of your members and communicate the products and services you have developed or acquired through third-parties. Then obtain home grown assets (high quality home loans) to drive the future profitability for the credit union while expanding your membership. If on the other hand, your organization decides to just stand pat, please do not say you were not provided with the stimulus to remain relevant.
Robert Dorsa is president of the American Credit Union Mortgage Association.
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