The Rundown

• Mortgages are driving membership growth.
• Low interest rates, credit union reputation behind thesurge.
• Mortgages serving as an anchor product for other productsand services.

Thanks to the real estate bubble and its aftermath in the GreatRecession, housing finance has become an increasingly importantdriver for credit union membership, according to credit unionexecutives around the country.

While for most of the last 40 years, higher interest savingsaccounts and certificates of deposit, combined with lower interestchecking accounts and auto loans have been the most common reasonsconsumers have joined credit unions, some say more people arebecoming members to either finance a home purchase or refinance anexisting mortgage.

They are doing so even though some credit unions have still notmade mortgage lending a higher priority in their overall membershipmarketing.

“I think we are seeing a real reversal in the usual order thathas been in place the last thirty years that I have been workingwith credit unions,” said Robert Dorsa, president of the AmericanCredit Union Mortgage Association in Las Vegas. “Mortgages used to be farther down on members' priority listsbecause, in part, credit unions only began to offer mortgage loansonly a short time ago, compared to banks.”

Even after they gained the ability to make mortgage loans, manymembers didn't even know their credit unions offered them, Dorsasaid.

“But now consumers are discovering credit unions can meet theirhousing finance needs at about the same time they are discoveringcredit unions as the source of local and trusted financial servicesthat they want. There is a real synergy there.”

Dorsa observed credit unions have known about the reasonsunderlying this change in member priorities for some time. Thecollapse of the housing finance industry drove out many of theindependent mortgage brokerage firms which used to be an importantwedge of competition for credit union housing finance. It left manymarkets with a housing finance vacuum that credit unionsfilled.

In addition, while credit unions saw their share of the mortgagemarket stagnate or experience a slow growth period during the midstof the real estate bubble, they also avoided any of the sorts ofrisky or 'gotcha' mortgage products that later got some consumersin trouble, Dorsa recounted. What this meant is that when thedust cleared from the real estate collapse, credit unions were leftstanding in a much emptier market and carrying a reputation withconsumers that is brighter than it may have ever been, henoted.

Add in some reluctance or inability among banks to get back intothe mortgage business at the same pace as before and the result hasbeen a bonanza that has the promise to reshape at least part of thecredit union industry.

“We have never seen anything quite like it,” said Mike Valentine, president/CEO of the 162,000 member, $1.7billion Baxter Credit Union, in Vernon Hills, Ill.

Although a long-time mortgage powerhouse, Valentine reportedthat Baxter's housing finance staff has been running to keep upwith the demand the credit union has seen over the last 18 to 24months.

Indeed, Baxter made over $1 billion in mortgage loans in 2010,before falling back to $581 million in 2011 and standing at $392million as of the end of June 2012, according to data from theNCUA. Valentine said the credit union is on track to double lastyear's volume.

He credited the low interest rate environment for helping tospur the demand along with the Home Affordable Refinance Program.Baxter has also built a reputation for being a resource for gettinga square deal on a mortgage or a mortgage refinance, Valentinesaid.

In addition, the credit union was in the midst of a membershipexpansion brought on by its merger with the smaller TargetCorporation Credit Union in 2011. The merger brought Baxter anadditional potential 365,000 members nationwide. Many of them wereof modest means who were likely interested in finding a source forreliable, secure and affordable financial services.

Like other executives noting the mortgage phenomenon, Valentinereported that consumers who became Baxter members through thehousing finance program, usually did so through word of mouth.

“Somebody in one of our SEGs gets a really good mortgage deal orrefinance from us and then they tell their buddy or their cousin ortheir other family member who also works for the company and wehave another interested consumer,” Valentine said, adding that thehousing finance works especially well for the credit union becausea mortgage loan to a member who is really seeking one can be ananchoring product that may lead to cross-selling other products andservices such as direct deposit and other loans.

Doug Leever, mortgage sales manager at the 54,000 member, $555million Tropical Financial Credit Union in Miramar, Fla., said he isseeing an even more dramatic surge in interest from the public inits housing finance products.

“There has been a great deal of excitement in our mortgageproducts already, from the HARP II program and also from the lowinterest rate environment and people's willingness to look to acredit union,” Leever said.

According to NCUA data, Tropical Financial made $39 million inmortgage loans in 2010, $67 million in mortgage loans in 2011 and$47 million as of June 30. Many of them were refinanced loans fromcurrent members. Some of the loans came from other financialinstitutions but a percentage also originated from people who hadheard of the credit union's mortgage deals from a friend or familymember, Leever said.

“We have a community charter as well as SEGs so that givespeople more avenues to hear from us,” Leever noted, adding thecredit union was able to help people, more effectively than banks,who were interested in a HARP II refinance.

Perhaps, counter intuitively, this very success in housingfinance has led Tropical Financial to partner with CU RealtyServices LLC, a Scottsdale, Ariz.-based housing finance CUSO thataims to help credit unions become a one-stop shop for their membersmortgage needs.

“This will enable members and potential members who are alreadythinking in theory about taking out a mortgage loan with us toreally be able to do the research on where they might want to live,[and] what the schools are like, right from our site,” Leeversaid.

Still, as exciting as the mortgage surge is right now, Dorsa isnot letting credit unions off the hook with marketing and buildingtheir housing finance programs.

“Even if credit unions had almost 100% penetration of theirexisting membership on mortgages, that would still leave a lot ofAmericans who could really use a hand with their mortgages,” Dorsasaid. “Credit unions have to keep up the pace of letting peopleknow what we can do.”