Economy Moves Navy Federal
In the 80 years that Navy Federal Credit Union has been in existence, the cooperative has never had to lay off any of its employees.
Cutler Dawson, president/CEO of the $55 billion financial institution in Vienna, Va., wanted to make the point that loyalty is steeped within Navy Federal's core.
“We have a great membership that is very loyal. We like to say we’re with our members from start to finish,” Dawson said during Navy Federal's 2014 Economic & Finance Roundtable on Feb. 20.
The session, held at the credit union's headquarters, was also streamed online. Dawson was one of several panelists who spoke on the changing mortgage landscape, projections on consumer spending and lending growth and the influence of mobile banking. In addition, there was discussion on the U.S. economy, the Federal Reserve Board outlook, and the employment outlook.
Alan MacEachin, Navy Federal corporate economist, said that with continued modest GDP growth and improvements in job growth, spending and borrowing should increase this year.
“All prices should rise further but not at double rates like last year. We expect short term rates to stay right where they are,” MacEachin offered. “Long-term rates have been great over the past two years with an increase on average of a quarter of a percent.”
With the nation's economy on the road to recovery, Navy Federal is likely poised to build on momentum in a number of areas including mortgages, auto lending, credit cards and mobile banking.
The credit union's mortgage program had 100% growth from 2011 to 2012, said Katie Miller, Navy Federal's vice president of mortgage lending. That growth carried over into 2013 making the cooperative the 23rd largest loan originator in the U.S. among all banks and credit unions, she added.
Purchase volume has nearly doubled and more than 10,000 active duty personnel received mortgages in 2013. Fifty-three percent of Navy Federal's originations went to first-time home buyers.
As for the new qualified mortgage standards from the Consumer Financial Protection Bureau, Miller said Navy Federal doesn't anticipate any contractions in originations. When QM was announced, the overwhelming majority of the credit union's loans met the standard, but there are some that do not qualify, said Richard Morris, vice president, investor relations and equity lending.
“We expect a strong purchase year, much stronger than last year. Once that snow goes away, it's all coming back. Applications are coming in,” Miller noted.
To illustrate how Navy Federal is helping first-time home buyers, Dawson spoke about the credit union's Home Buyer Choice program for those who are not eligible for Veteran Affairs financing. Applicants are not required to put any money down – a move that has raised some eyebrows.
“A lot of people have said, ‘You’re crazy to do no money down mortgages,’” Dawson said. “We offered (the program) pre-recession and the performance, in regards to delinquencies, has been superb. We went on a hiatus during the recession and then turned on the spigot.”
Dawson recalled one member, who wasn't in the military but has been a member of Navy Federal for 15 years through family ties. The member has two children and investments in 529 plans and retirement plans but was reluctant to break into either of them to buy a house. In the end, he was able to get a home through the credit union's Home Buyer Choice program without tapping his long-term savings.
As Credit Union Times has reported, Navy Federal had a record year with its auto lending activity in 2013. The credit union made 300,000 auto loans to its members and outstanding balances grew at 9% compared to 3% for the rest of the industry, said Joe Pendergast, assistant vice president of consumer lending. Last year, Navy Federal made $8 billon in auto loans with 60% of coming from used car financing and 40% from new.
“Consumer confidence is definitely on the rise. During the recession, there was a lot of nervousness about buying things,” Pendergast said. “The average age of a car is now over 11 years old. As a result, we’re seeing a lot of pent-up demand.”
A low rate environment has also helped boost Navy Federal's auto loan portfolio, Pendergast added. The credit union helps young military recruits who often have little or no credit by ensuring that their loan payments are affordable and within their budgets.
“As far as 2014, we’re well-positioned to grow well this year. We just had the best January in Navy's history,” Pendergast said.
One area that could see some flux is within the ever-changing card space. Navy Federal grew its card account base by 23% in 2013 compared to 5% for the rest of the credit union industry, said Randy Hopper, Navy Federal's vice president of vice president of consumer lending.
“We can't really talk about cards and payments without talking about an increase in nontraditional players such as Google Wallet and Square,” Hopper explained. “So, were constantly asking members ‘what are you using.’”
A changing rate environment could have an impact on card offers, Hopper said. Twenty-five percent of offers in the last half of 2012 didn't include an intro APR offer, which could be an anticipatory sign of higher rates, he pointed out. While members can also expect to see more niche products, Hopper said Navy Federal's focus has been on simplicity, flexibility and giving members the value they’re seeking.
“With the recent developments, we’re keeping a focus on security features and taking a look at technology from the front end to the back end,” Hopper said. “We acknowledge EMV will be important but it's not a main solution, it's part of a solution.”
Many of Navy Federal's more than 4.6 million members are young and mobile, said Meghan Gound, assistant vice president of eChannels. To meet their on-the-go needs, the credit union has provided platforms for iPhones, Androids, iPads and Kindles in addition to having a “great, lightweight mobile site.”
There is also a strategic push to provide service for smartphones that Navy Federal doesn't provide apps for. This year, the credit union will continue to build in the mobile space including keeping an eye on mobile payments.
“Over the past two years, we’ve had tremendous growth. In the just the last 18 months, member logins have grown over 270% and over 27% of our members on mobile are over the age of 18,” Gound said.