Credit unions may have their best opportunity ever to boost the portion of mortgage loans that actually go to purchase homes as opposed to loans that refinance previous notes.

Many credit unions seek to build up purchase-money loans as a hedge against the day when the numbers of refinance loans decline and because they often include significantly more cross-selling opportunities.

The signs that the demand for purchase-money loans is rising in the housing finance industry overall are becoming widespread.

The Mortgage Bankers Association reported that applications for purchase-money mortgages rose 7% for the week ending Jan. 18, equaling a high that it had not reached since May 2010 when the federal government offered a tax credit for purchasing a new home.

“This increase in purchase applications was primarily for conventional loans, as the seasonally adjusted conventional purchase index was at its highest level since October of 2009,” the association reported. “The unadjusted purchase index increased 9% compared with the previous week and was 26% higher than the same week one year ago.”

Key housing indexes such as the Federal Housing Finance Agency's existing home sales moved sharply higher, going up 5.9% in November to a 5.04 million annual rate, following a 1.5% rate in October, according to the regulator for Fannie Mae and Freddie Mac. Also, the FHFA purchase-only house price index gained 0.5% in October after remaining virtually unchanged in September. New home sales also moved higher in November, with sales up 4.4% to an annual rate of 377,000, hitting a two-year high. New homes sales, which started in 2012 at 340,000, have slowly been building up.

Signs among some credit unions are also positive, with the 98,000-member $1.13 billion Partners Federal Credit Union reporting that it concluded a deal with the housing finance CUSO CU Realty Services in order to help it meet the demand for what it called a coming surge in demand for purchase-money housing loans.

The Burbank, Calif., credit union serves the employees of the Walt Disney Co. and their families around the country.

“Building relationships with Realtors certainly strengthens our purchase-mortgage business,” said Michael Terzian, the credit union's vice president of marketing and business development. “But maintaining a network of qualified agents in multiple cities in two states would be very difficult for us to achieve. CU Realty is making it easy because they provide a network of knowledgeable real estate professionals.”

Terzian explained that the credit union provides services to large groups of members in Burbank and Anaheim, Calif., and central Florida, mostly around Orlando. But the credit union also has a significant number of members from more widely spread parts of the Disney company, such as Northern California where the Pixar movie animation firm, now a Disney-owned company, is located.

The credit union decided to get ready for a rising demand for purchase-money loans because members were already signaling that demand, Terzian explained.

“We hold periodic housing finance seminars, sort of to quietly market the credit union as a mortgage provider but really to explain the mortgage process to our members,” Terzian said. Starting in mid-2012, Terzian said, the number of members attending the meetings climbed sharply and that the questions changed from how they could buy a piece of property in foreclosure as an investment to how they might buy a piece of property to live in.

“I think there were a number of members who had been sitting on the sidelines and hadn't been ready to come in, but that a combination of a shrinking number of houses in their areas and rising rents had helped them make the decision,” he said. Signing up with CU Realty Services had been part of the effort to meet those needs, particularly for members who were not in Burbank, Anaheim or central Florida, he explained.

CU Realty Services seeks to help participating credit unions become the first point of contact for their members, whether they are buying or selling real estate. Making the credit union the source of both information about potential home purchases or sales and Realtors ready to help credit union members at a reduced cost should help the credit union capture more of the purchase-money lending, the credit union hopes.

Terzian forecasts that, unless something like another economic downturn occurred, the credit union could see as much as 35% to 40% of its housing finance loans this year be purchase-money loans. He also said Partners was looking for an overall mortgage volume of $275 million this year, up from the $260 million the credit union did in 2012 with a 30% share of its business in purchase-money loans.

“We created CU Realty Services as an advantage to both credit unions and their members,” said CUSO CEO Mike Corn. “Over the past decade, we've recruited and trained more than 400 Realtors in 20 states and numerous metro areas. And credit union members have saved millions in closing costs–over $2.2 million in 2012 alone.”

Corn said the firm had been hearing from member credit unions about increased demand for purchase-money loans and noted that in some markets, like Phoenix and Washington, D.C., its credit union partners were being hampered in their purchase-money business by a lack of available properties.

“I think credit unions have finally turned the corner about letting their members know they make mortgage loans and in improving their housing finance programs and operations,” Corn said, adding that he believed credit union loans officers have a bit more room to be flexible with borrowers as well as a reputation as local lenders that also helps them compete.

Instant Insights /

Purchase-Money Lending May Be Ready to Blast Off

Related Stories

Recommended For You