Housing Market Fights to Keep Pace With Economy
A drop in mortgage loan refinancing activity, increased regulation and a sluggish market for purchase money mortgages have combined to make 2014's first quarter discouraging for some credit union lenders.
But mortgage executives said remain optimistic, and generally believe their institutions are positioned to take advantage of a pickup in loan demand when it occurs.
“Frankly, it's been very, very slow,” said Charles Price, assistant vice president for lending at the $2 billion NEFCU in Westbury, N.Y. “We haven't even seen many Realtors putting out the signs yet. We have seen the refinances pretty much drop off entirely, but demand for purchase money lending has been dragging.”
Purchase money loans are mortgages used to buy a piece of real property, not refinance an existing note.
Nationwide, the Mortgage Banker's Association reported an overall decline in loan volume.
“Similar to our outlook for last month, the housing market has weakened despite steady growth in the broader economy,” the MBA reported in its March Economic and Mortgage Finance Forecast.
Mortgage application activity remains slow, with applications for home purchase mortgages still 15% to 20% below last year's pace, and refinance applications more than 60% slower than a year ago, according to the MBA report.
The purchase index has not seen the typical late winter/early spring pickup in activity that has been typical of previous years. Existing home sales are running at the slowest pace since late 2012, and have also started to see year-over-year decreases, said the mortgage association.
Price blamed the low demand in large part on the severe weather his market has experienced this winter, saying that it has both reduced the inclination of homeowners to sell their existing homes as well as put a freeze on the appetite of home buyers going out to find them.
Price said in 2013 NEFCU closed roughly $150 million in mortgages with roughly 80% of those refinancing previous notes and 20% in purchase money loans.
“Our goal, obviously, is to move that up,” he said, adding the credit union has been preparing staff and processes to be ready for an increase in demand for purchase money loans.
“In many ways it feels like we are going old school, but if it's what we need to do, we will do it,” he added.
Some industry experts refer to purchase money loans as double-edged products because they tend to be more difficult to process and often carry tighter timelines. But, the loans can lead to larger rewards, yield larger fees and provide opportunities to cross sell members on additional products and services.
In a sputtering market, credit unions are already in a position to offer an intensely borrower-centered, high service, high touch and high trust sort of lending that should make them stand out as mortgage lenders, said Robert Dorsa, executive director the American Credit Union Mortgage Association.
“When I am a skeptic, I am sometimes a skeptic about credit unions really stepping forward to seize the opportunity they have earned and built,” Dorsa said. “But I don't doubt that the opportunity exists.”
Dorsa said in addition to the shift from mostly refinancing loans to writing new ones, mortgage lenders are also facing a shift in borrowers’ desires from conducting the entire mortgage application process online to adopting a process that may have online elements with heavy reliance on face-to-face contact.
“And that is credit unions’ bread and butter,” he noted.
A recent report from the consulting firm PricewaterhouseCoopers LLC entitled Lock in Loyalty: Coming to Terms with New Borrower's Needs said consumers see securing a mortgage loan as one of the most stressful things they may ever do, and view the stress of the process to be as much or greater than obtaining a new job or making repeated trips to the dentist.
In response to these fears, the report found that customers want a loan officer that acts as an adviser and advocates for them rather than a transactional bank representative.
The data also showed home shoppers want a mix of digital and face-to-face interactions in the process.
Consumers also like it when mundane tasks such as submitting documents or getting updates on the process are digital and easy to submit or receive, according to the report. However, when it comes to having questions answered about the process or seeking reassurance about certain details, consumers want to communicate with someone by phone or in person.
Richard Whitman, vice president for mortgage lending at the $850 million Texas Trust Credit Union in Dallas, said he learned this lesson long ago and made changes to make the mortgage lending process more user friendly.
One small change, for example, was making sure a borrower only had one point of contact with the credit union throughout the process. The staffer was responsible for keeping that member up to date with regular and consistent communications. Even though Texas Trust's loan mix in 2013 was 70% refinance and 30% purchase loans, Whitman said the cooperative secured more purchase money borrowers, in part, because of this approach.
He recalled a recent incident when a new member recounted how a major bank had let her continue thinking everything was fine with her loan application until two days from closing, when the institution sent her a form letter saying that it would not be able to offer the loan after all.
“She was devastated,” Whitman said, “So much so that the only way she would think about doing it again was with us and with our process.”
Whitman described how Texas Trust sought to see the process from the borrower's point of view.
“We realized, especially (with) first-time borrowers, there is no real understanding of how the process works,” Whitman said. “A borrower might receive a request for information we consider routine and imagine that something is really wrong with their loan; that they might not have gotten it (and) thinking ‘why are they asking me this?’ Instead, our officer will talk to the borrower and explain what we want and why and what it means to the process.”
Alan Stoltenberg, vice president of mortgage lending at the $650 million SAC Federal Credit Union in Belleview, Neb., said purchase money lending took a hit earlier in the year but has shown signs of revival. The credit union booked $65 million in mortgage loans in 2013 with roughly 70% being refinances and 30% purchase loans, he said. Still, SAC FCU's purchase money loans didn't fall off completely.
“We never lost all that business and we have seen the market for our middle range, say from $150,000 to $250,000, picking up.”
Stoltenberg said a few years ago, the credit union sought out area Realtors to build relationships. Now, those alliances have been reinvigorated with the improved housing market.
“I can say now that most Realtors in our market know who we are and that we make mortgage loans,” Stoltenberg said. “There was a time when I might not have been able to say that as readily.”
Scott Moriarty, CEO of CUMANET, a mortgage CUSO owned by the $2.2 billion Affinity Federal Credit Union in Basking Ridge, N.J., said he is also optimistic about his mortgage outlook, even though purchase money demand has been low at his shop as well.
“It will pick up, and we are gearing up to be ready when it does,” Moriarty said.