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<p>SCOTTSDALE, Ariz. – The message was made clear to “complacent” credit union mortgage executives meeting here last week: start now to examine and perhaps upgrade your servicing policies and procedures or risk losing business to the large bank-owned mortgage service firms. That theme of “increased awareness” to make mortgage servicing more efficient possibly through outsourcing or subservicing was driven home in a series of panel discussions and speeches at the annual American Credit Union Mortgage Association Conference. Clearly, noted ACUMA Chairman Brian Litster, CUs need to step up their mortgage penetration of the market that remains small by comparison with other financial institutions. Moreover, 60% of all U.S. mortgages, not just CUs’ originations, end up in the service portfolios of the top 10 providers, most of them big New York and California banks. Those institutions with their vast resources, noted Litster, who also is director of mortgage lending at Xerox Federal Credit Union, El Segundo, Calif., have demonstrated their efficiencies in technology and in other areas to cross-sell CU members on a wide scale. Describing mortgage operations at Boeing Employees Credit Union in Tukwila, Wash., Judy Elrod, director of mortgage lending, told ACUMA attendees her three-year- old subservicing agreement with Cenlar Federal Savings Bank of Ewing, N.J., has freed up staff and resources enabling the CU to devote more time to the origination and application side of the business. It has also opened opportunities for Boeing in pursuing new product and service areas, she said. Recalling the refinance boom of last year, she noted Boeing “was doing 100 a month and then we were doing 900″ underscoring the strains put on staff to process applications, she said. Elrod said Cenlar which provides high quality service to members under a private label format covering 800 phones, mailing, call-ins etc., also offers critical management reports to Boeing and provides a strong Web program, she said. And best of all Cenlar, as a private firm, is not a competitor for lending products. She said Cenlar has been particularly helpful to Boeing in connection with strike threats since labor issues and their impact on mortgage servicing are factors in Boeing’s selection of a servicing partner. The kind of refi pace endured by Boeing and other CUs last year has ebbed and now mortgage executives have been given “a breather in 2002,” noted Tracy Ashfield, also a speaker on the ACUMA program and a Middleton, Wis. mortgage consultant. “For most credit unions making mortgages is really a new service, and so the industry is now in the process of pinning down optimum strategies to make them the most efficient,” said Ashfield, who also is president of Strategic Mortgage Solutions Inc. David J. Miller, senior vice president of Cenlar and also a panelist on the ACUMA program, said the servicing extended to Boeing aids the Washington CU on secondary market processing and allows Boeing to take advantage of advanced accounting and regulatory reporting procedures. However, another servicing vendor, David Allison, senior vice president and marketing director of Dovenmuehle Mortgage Inc. of Schaumburg, Ill., suggested the risks to customer loyalty in so-called sell-release packages are significant noting a J. D. Power & Assoc. survey arguing that reselling mortgages is a “recipe for disaster.” Nonetheless, he said the J.D. Power study failed to fully realize the very vital cost considerations in reselling mortgages permitting expanded product capabilities and reduced delinquencies. He cited the expanded product range can include ARMS, interest only mortgages, home equity, and balloons. In other remarks before the ACUMA gathering, several CU mortgage executives said they were choosing outside firms for servicing their portfolio for the time being because of cost and staffing factors but eventually would hope to handle mortgage servicing internally to keep close ties to members. For one, Baxter Credit Union in Vernon Hills, Ill. said it had opted for a subservicer, Midwest Loan Services of Houghton, Mich., but “our long term goal is for us to service all our mortgages,” noted Bob McKay, Baxter’s senior vice president and chief operating officer. After ending an agreement with a Green Bay, Wisc. bank holding company, Baxter decided on Midwest after examining the “environmental influences” and after a “struggle of key issues” relating to the give-up of control over this important area since a goal was to build close relationships with members. “Could we bring servicing back in house later on if we desired and could we bring it back at a cost effective level?” were two questions that were asked, declared McKay in his ACUMA remarks. Ed Burger, president of Midwest, said his Michigan firm handles servicing for 35-40 CUs around the country and the company’s willingness to forgo an exit fee should CUs like Baxter or others decide to return to in-house have been positive factors in attracting CU clients. Baxter’s McKay said also his decision to use Midwest centered on the firm’s ability to service members outside of Illinois since the CU whose members are employed by the big drug maker has a large branch network outside the state. A number of CU executives at the conference agreed that in-house servicing, while desirable in remaining close to members, restricts the ability of the mortgage staff to originate loans particularly the newer products relating to FNMA, FHA and VA. “There are lots of credit unions out there who really want to concentrate more on the origination side of the business to start bringing in those applications,” noted Ashfield, the Wisconsin consultant and former CUNA Mortgage senior vice president. [email protected]</p>

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