Mortgage Preapprovals Can Give CUs an Edge
The top 25 mortgage lenders recently reported only 29,912 preapprovals resulted in mortgages used in a home purchase in 2012, according to data from the Federal Financial Institutions Examinations Council. That figure is down from 101,626 in 2007.
Preapprovals also accounted for just 4% of purchase mortgages originated by the lenders last year, down from 9% in 2007.
“Credit unions seldom receive gifts like this,” said Bob Dorsa, president 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.”
Dorsa added that credit unions should move to seize the opportunity now, as large lenders are under scrutiny from regulators and state attorneys general for their mortgage lending practices.
Members of the $3.8 billion Ent Federal Credit Union of Colorado Springs, Colo., still favor preapprovals, but the 228,000-member credit union is considering revising its preapproval process in light of changing regulations, according to Vice President of Mortgage Lending Jon Paukovich.
He also said prequalifications are popular with a key demographic: real estate agents.
“It’s very good for realtors to know that our members have been prequalified and that they don’t have to worry about whether and how they are going to get financing for a purchase,” Paukovich said. “A majority of realtors still don’t know credit unions do much mortgage lending, and prequalifiying borrowers helps bring that home to them.”
Paukovich said Ent views the prequalification process as a first step in the underwriting process for both the credit union and the member, particularly on the topic of income.
“I think it’s a very good exercise for members to see that when we are talking about mortgage lending, we aren’t talking about gross income or even net income after taxes,” Paukovich said. “We are talking about net income after other bills get paid. Sometimes they are surprised that they aren’t able to afford quite as much as they thought they could and sometimes they are surprised to find out they can afford more.”
Ent funded approximately 2,500 mortgage loans in 2012 for $485 million, Paukovich said. A whopping 37% of them were for home purchases.
Most of the purchase loans are fixed rate, often for longer terms, and Paukovich said the credit union portfolios some and sells others, though it retains the servicing rights to the notes it sells.
Paukovich said the purchase money market has largely recovered in Colorado Springs, where four large military bases helped keep the economy stable.