After a long, hard climb, credit unions have established themselves as a credible source for real estate loans.
Market share began to climb in 2008 as the economy faltered and more people put their faith in credit unions. Four years later, market share continues to rise. It’s been good for consumers and good for credit unions. Consumers are getting affordable loans, and credit unions have strengthened their balance sheets, increased noninterest income and deepened relationships with members.
As I work with credit unions to build strong real estate lending programs, I spend time talking to their leadership teams about what’s working and what’s not. Often, the conversation turns toward the challenges facing their organization.
The real estate lending business is getting more difficult. For credit unions that sell their loans into the secondary market, requirements have become more burdensome.
It’s not just tightening credit standards that can create business headaches; it’s also the need to adapt, develop and implement new processes to ensure compliance with secondary market requirements. Credit unions are tracking, reporting, verifying and recertifying like never before. Advances in technology have helped offset some of the efficiency drags, but not enough to reverse the increasing number of hours needed to get a loan from origination to closing.
Meanwhile, the new Consumer Financial Protection Bureau has been busy developing regulations to reinforce its Congress-mandated mission to make sure that consumers “know what they owe.” The agency’s intentions may be honorable, but credit unions seeking to comply are spending large chunks of time wading through thousands of pages of proposed CFPB final regulations.
It has forced real estate managers to spend their days torn between working at the business of making loans and trying to ensure they are in compliance. It’s an unpleasant tug-of-war – one that neither side is winning.
In my work, I encounter many lenders who are discouraged. They say credit unions are being picked on. We are the good guys, they say; we’re not the ones responsible for the detrimental lending practices that crippled the market.
The truth is we aren’t getting picked on. We’re getting the same treatment as everyone else. Yes, we can hope for relief for small lenders but we can’t be sure that’s going to happen.
The real estate lending business has changed forever. The current state of affairs is not a momentary inconvenience. This is the new normal.
Is it worth the challenges credit unions are facing in real estate lending? Absolutely. Credit unions must move forward and devote the resources necessary to maintain the market share foothold that has been gained over the past four years.
Why? My answer is simple: it’s for the members. Credit unions have earned their members’ trust by doing things right and lending fairly. You have used your passion to improve their financial well -being. Real estate lending may be difficult but it’s also the biggest financial services need that most of your members will ever need. And, you need to be there for them
I don’t make light of the challenges. During the 30 years I have been in this business, the level of change happening now is unprecedented. Change is difficult but it’s not impossible. Simply knowing that change is needed won’t make it happen. Change requires planning.
First, review your current business model. Are you trying to do too much? Few credit unions can provide good member service, competitive products and pricing, and yield a fair margin without help. Are you outsourcing things that aren’t your core competency? Consider partners and working cooperatively. With solid due diligence and third party oversight, partners can make all the difference.
Second, make compliance an organization-wide priority. There may be many individuals in your organization who work on compliance but it needs to be organized, ultimately, under one person. The effects of most of the emerging real estate regulation are felt well beyond the real estate department. It touches marketing, human resources, and finance. Cross-functional teamwork and communication isn’t an option, it’s a necessity. If compliance isn’t a core competency, get help. You can’t outsource compliance, but you can get professional help to ensure you have compliant processes and business practices.
Finally, and perhaps most important, get involved. Credit unions benefit from multiple trade associations, all of which keep a watchful eye on these issues and lobby for their members. Use their help, but don’t leave it to them. Get involved and be proactive.
Tracy Jean Ashfield is president of Ashfield and Associates LLC
Contact 608-231-9767 or tashfield @consultsms.com