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RANCHO CUCAMONGA, Calif. – The hole created when CUNA Mutual Mortgage moved its back-office operations out of its facility here last year as part of a consolidation move has become the impetus for the California Credit Union League forming a mortgage service organization, CU West Mortgage. But parties on each side disagree over whether the way CMM implemented the consolidation played any part in the league’s decision. Dave Chatfield, president/CEO of CCUL said when stockholders of CU Mortgage sold the company to CUNA Mortgage in 1998, the two mortgage companies signed an agreement that CUNA Mutual Mortgage would retain a presence in California. Therefore, said Chatfield, “by CUNA Mutual Mortgage pulling its back-office operations out of California last year, they reneged on the agreement.” CCUL was instrumental in starting up CU Mortgage but it was never an investor. Before it merged, the company was owned by 61 California credit unions. Jim McCourt, SVP, home ownership solutions for CUNA Mutual Group, agrees there was a written agreement, but he said it stipulated CMM would maintain a presence in California for three years following the sale of CU Mortgage. “Our consolidation move happened after that three-year window expired,” said McCourt. When asked if CMM had planned for the consolidation but waited to make any move until after the three-year window closed, McCourt said “no. We knew there were a lot of inefficiencies in our set up, but we didn’t start to look at consolidating until after the three years had expired.” Chatfield said the League and credit unions were disappointed in the way CUNA Mutual Mortgage handled the consolidation move. He said the move was made “abruptly.” But McCourt disputes that as well, saying CUNA Mutual Mortgage gave the California League and credit unions six months written notice of their plans. As for Chatfield’s explanation that the idea of forming CU West Mortgage came from feedback the league got from credit unions about the need for having a mortgage company with a local presence, McCourt said that may have been some CUs’ initial reaction when they first learned of CUNA Mutual Mortgage’s consolidation plans. But he said the company still has many California credit union clients – they’ve even added several since last year – and their initial anxieties “have gone away.” McCourt also made it clear that CUNA Mutual Mortgage only moved its back office operations to its Fitchburg, Wis. facility. It still retains eight retail loan officers, two regional sales people, and Western regional sales director in California. “By moving our back office mortgage operations back to Wisconsin, we haven’t stopped having a presence in California,” said McCourt. CUNA Mutual Mortgage divides the U.S. into three regions – West, Central and East. According to the most recent regional breakout, 23% of the CMM’s volume comes from the West Coast – and 60-70% of that is from California; 54% is from the Central region; and 23 % from the East. CUNA Mutual Mortgage did about $3 billion in mortgage originations in 2002. McCourt said the consolidation of the company’s mortgage operations has not only created operational efficiencies and doubled productivity among employees, it’s also lowered the company’s cost of doing business which means, he said, CUNA Mutual Mortgage can offer better pricing to credit unions in California and other parts of the country. At press time, Chatfield said CCUL planned to have the partners in CU West Mortgage set by the week of March 31. In addition to CCUL, there will be two other partners in the endeavor including a technology company and Community Mortgage Funding LLC, a three-year old mortgage CUSO owned by five Southern California credit unions – Financial 21 Community CU, SCE FCU, Farmers Insurance Group FCU, Energy First CU, and Water and Power CU. CMF will handle the front-end origination work for CU West Mortgage. Gene Roberts, president/CEO of Financial 21 Community CU and chairman of CMF’s management committee said the CUSO does about $14 million in mortgage originations a month for the five CUs’ nearly 100,000 members. CMF handles the origination, underwriting and servicing of the mortgages, and each credit union has the option of holding or selling a members’ mortgage in their portfolio. Roberts stressed that CMF will remain a separate entity from CU West Mortgage. “We already have an operation in place,” he said. “The California League’s other alternative was to start from scratch at ground zero, and that would have meant getting licensing and financing. We already have that.” Roberts said back office work such as marketing will “probably be handled by CCUL.” At this point, Roberts said CMF is still assessing how much staff it will need to add and any additional hardware and software it will require to handle the work load resulting from originating mortgages for other credit unions besides CMF’s five owners. “We’re still trying to put a plan together and are working on the legal aspects,” he said. When asked if the California League’s formation of CU West Mortgage could be interpreted by CUNA as being a competitor to CUNA Mutual Mortgage, Roberts quipped that “It appears it could be a competitive situation.” He refrained though from commenting on any political aspects of the situation. Steve Renock, who was the senior vp of marketing and communications for CCUL until March 3, as well as chief operating officer of the California League Services Corp. and who now works at Orange County Teachers FCU, Santa Ana, Calif., confirmed that after CUNA Mutual Mortgage moved its back-office operations out of California, the California League received calls from 50 to 60 credit unions in California and Nevada who he recalled told the League that “even though they understood CUNA Mutual Mortgage’s explanation for consolidating, they still preferred to do business with a credit union mortgage company that had a local presence.” It was at that point, said Renock, that the California League decided to get in to the mortgage business and form a mortgage service organization. “The California housing market is uniquely unusual because of the cost of homes and the size of loans,” said Renock. “So they wanted to do business with a company that understood that market.” Chatfield and McCourt agreed with the uniqueness of the California market, but McCourt said CUNA Mutual Mortgage has an East, West and Central region team that are based out of Madison, Wis. and who all underwrite loans from where they’re located. “They know their market even though they don’t necessarily live there or do business there,” he said. Chatfield and McCourt also agree that having another mortgage service organization on the West coast credit union scene adds another company into the competitive mix, but both executives are unphased. McCourt said he views CU West Mortgage as “just another mortgage CUSO competing with us like the other mortgage CUSOs out there. “We’re still going to be able to bring more to credit unions because of our economies of scale,” he said. Chatfield said he expects there will be “some competition” between CUNA Mutual Mortgage and CU West Mortgage, but he doesn’t think members will be confused. “Credit unions told us they’d prefer doing business with a local company that knows their market, and that’s what we can offer them.” -

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