Major mortgage lenders appear to be continuing their strategic retreat from the U.S. housing finance market, leaving credit unions with a significant opportunity that they may not be willing or able to take.
Major lenders pulling back from their mortgage operations is not particularly new. Bank of America cut its share of the U.S. mortgage market to roughly 8.5% last October when it shut down its correspondent mortgage lending program with smaller banks. Then it and other mortgage lenders made news when they laid off significant numbers of their leading loan officers and processors.
Further, as Robert Dorsa, president of the American Credit Union Mortgage Association, pointed out, the big lenders still face waves of litigation stemming from the mortgage industry meltdown and the mortgage-backed securities debacle. They also face regulatory uncertainty that the rest of the industry faces as well.
“It's not hard to understand why the big lenders might be cool on housing finance at the moment,” Dorsa said. “The mortgage market remains pretty dismal for the big guys. The big question is how much of an opportunity does that present credit unions and whether or not they will take it.”
Media reports have cited analyses that show some of the regional banks, such as Fifth Third Bancorp and US Bancorp, have stepped into the gap left by the larger lenders, but credit unions also have an opportunity–if they decide to either increase their mortgage lending or start offering housing finance loans.
According to CUNA, more than 88% of credit unions with assets of over $20 million, which collectively serve more than 95% of current CU members, offer first-mortgage loans, many through relationships with outside for-profit firms or CUSOs that specialize in mortgages.
Yet the industry's share of mortgage originations still hovered at 6% as of the end of the third-quarter 2011. This is a record high, Dorsa acknowledged, but one that was particularly hard fought and yet still feels somewhat tenuous.
This particularly frustrates Dorsa now because there are signs the industry is starting to make real inroads into the broader mortgage market. More credit unions than ever before have been reaching out to Realtors, streamlining their mortgage programs and using them to reach out to their communities. But there are still too many CUs that are almost hiding the fact that they offer mortgage loans or are not offering them at all, Dorsa said, explaining that ACUMA discovers this anew each year when it takes a booth at the National Association of Realtors annual conference.
“Every year we routinely meet Realtors who say things like, ‘Oh, I love my credit union,’ and ‘Credit unions are great,’ but then are shocked to find out CUs offer mortgages,” Dorsa said. “‘My credit union offers mortgages? I didn't know that,’ or ‘My credit union offers mortgages? Since when?’ And it’s not just smaller credit unions, I have had members of Navy [Federal] say the same things.”
But awareness is not the only obstacle credit unions can face in stepping up their mortgage lending, Dorsa explained, sometimes credit union leaders are just not familiar with housing finance.
“We have people who in credit union leadership from the boards on down who cut their teeth on personal loans and auto loans and maybe credit card lending,” Dorsa said. “They're just not sure about mortgages and not sure they want to pull the trigger.”
Mike Schenk, vice president for economics and statistics for CUNA also cited some of the same problems that impact other lending, such as increased costs of regulation and a lack of resources as part of the problem.
“On the question of why more small [credit unions] don’t do this I suspect that regulatory burden is a major reason, though staff resource limitations (lack of expertise on mortgages, mortgage interest rate risk management and inability to pay to obtain this expertise) and a concern about the credit risk (one mortgage default for a small CU can be a big bottom line and/or capital hit) also are likely big concerns.” Schenk said via email.
Schenk also noted that the way mortgages are priced nationally can serve to reduce the price advantages credit unions also have on other loans.
“One thing that prevents CUs from gaining more shares faster is that mortgage pricing is determined in the (national) secondary market so the big pricing advantages CUs have on other types of loans are not as obvious in the mortgage arena,” Schenk said.