Declining Preapprovals Provide Housing Finance Opportunity
Large banks’ decreasing willingness to offer preapprovals to mortgage borrowers is offering credit unions another tool for increasing market share, according to some credit union housing executives.
Lenders give potential borrowers a mortgage preapproval as a written commitment which outlines the maximum size home loan they can get as well as the likely interest rate.
The borrowers can rely on the preapprovals to make sure they’re shopping for a home that’s in their price range and with terms they can afford. But housing finance executives and experts point to federal data, issued before the government shutdown, which suggests lenders are scaling back on preapprovals.
According to data from the Federal Financial Institutions Examinations Council, the top 25 mortgage lenders reported only 29,912 preapprovals resulted in mortgages that borrowers used in a home purchase in 2012.
The experts noted that this is down from 101,626 in 2007, before the housing downturn. They also reported that preapprovals accounted for 4% of purchase mortgages that were originated by these lenders last year, down from 9% in 2007.
As banks stop preapproving borrowers, credit unions have more room to distinguish themselves, market experts say.
"Credit unions seldom receive gifts like this,” observed Bob Dorsa, [resident of the American Credit Union Mortgage Association. “We need to focus on differences between our brand of mortgage lending and that of big banks.
“While we need to review maintaining responsible criteria for issuing pre-approval letters, this gives us an opportunity to enhance the manner in which we assist borrowers and Realtors as mortgage lending markets evolve. We should seize these opportunities particularly now as many big lenders receive more attention from regulators and attorneys general for their mortgage lending practices."
In comments on an ACUMA message board, Jon Paukovich, vice president for mortgage lending at the 228,000-member, $3.8 billion Ent Federal Credit Union in Colorado Springs, Colo., reported that Ent members still favored preapprovals and the credit union remained committed to using them, but that Ent is considering revising its preapproval process in light of changing regulations.