VERNON HILLS, Ill. -Puerto Rico may be several thousands of miles and a culture away from this city in the northern part of the state near the Wisconsin border, but the $800-million credit union wants to make sure its mortgage products are within reach for those of its members who live on the Caribbean island. Baxter CU has been trying since last year to implement a process that will allow the credit union to offer mortgages to the approximately 20% of its more than 104,000 members who live in Puerto Rico. The credit union already offers consumer loans to its members in Puerto Rico through its six branches located there, "but mortgages are different, and we don't have anyone in our branches there with mortgage lending experience. Neither do we have a relationship with any title companies or appraisers there," said BCU's Director of Mortgage Lending Herb Behrens. Until BCU gains greater familiarity with the Puerto Rico mortgage market, its plan is to start out by taking loan applications from members and handling the processing of the applications, but then sell the loan and servicing to a mortgage broker or another financial in Puerto Rico that has more familiarity with the mortgage market there. Down the road, said Behrens, once BCU feels it's gained enough experience in the Puerto Rico mortgage market, it will get more directly involved in originating and servicing those loans and consolidate its mortgage operations For now, though, the credit union wants to take it slow, just as it did the implementation of its U.S. mortgage operations. Until April 2001, BCU was a third party originator of mortgage loans for its U.S. members and only earned fee income from processing the loans that it sold to mortgage brokers or companies such as PHH Mortgage Services. For the past two years, BCU has been selling mortgages direct to the secondary market and retaining the servicing rights. It's currently holding about $115 million in its mortgage portfolio and has another $350 million in its mortgage servicing portfolio. When BCU first formulated its plan, it seemed feasible on paper, but Behrens said the process of getting things up and running has been fraught with several frustrating setbacks. Last year, Behrens said he and other BCU representatives met with the top six mortgage producers in Puerto Rico – including some of the largest banks that operate on the island – to find a business partner. "We told them `here's what we have to bring to the table, here's what our situation is. We need help to get this going, and we're willing to learn how to do this ourselves'," he said. BCU also made it clear to the banks what the credit union's criteria were and what it expected from a business partner. At the top of its list – the business partner wouldn't try to cross-sell to the credit union's members. Behrens said the credit union narrowed the list down to one bank – Banco Santander – and the bank had even designated a member of their staff who would be dedicated to working with BCU and their mortgages. Unfortunately, that person left the bank before BCU's mortgage program in Puerto Rico could get started. When Baxter's plans hit a wall, the credit union turned to Fannie Mae for assistance since BCU already sells many of the mortgages for its U.S. members to the secondary lender, is familiar with using Fannie Mae's Desktop Underwriter loan product, and Fannie Mae also does business in Puerto Rico. Fannie Mae referred BCU to a small mortgage broker in Puerto Rico who also uses Fannie Mae's lending tools, and BCU is currently engaged in discussions. Despite the setbacks, Behrens said BCU still plans to have mortgage processing up and running in its Puerto Rico branches by the end of 2003. "As we get going, we'll see where that takes us," he said. -

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