TUKWILA, Wash. - The refi party's over, now what? That may be aquestion most credit unions, and for that matter most mortgagelenders, are asking themselves these days. Record low rates up to afew months ago bolstered credit unions' ability to capture mortgageloans, particular refinances. But mortgage rates are slowly inchingup and most mortgage specialists are concurring that the refi boomis over. So now it's time for credit unions to adjust theirmortgage strategies and start thinking about the purchase market."Credit unions have been wildly successful over the past two or soyears taking the overflow in the refinance market. The refi boomallowed credit unions to enter the market and provide professionalservices, but unfortunately that doesn't translate in to volume,"said Joe Brancucci, president/CEO, Prime Alliance Soluions, vp oflending/chief lending officer for Boeing Employees CU, and therecently appointed chairman of the CUNA Lending Council. Thepurchase market is driven by realtors and builders, said Brancucci,and this is an area credit unions have been weak in, so they needto develop relationships with both groups if they're going to besuccessful in the purchase market. He cited by example, CU Realtythat offers credit unions an online real estate and home rebateprogram that provides an end-to-end home buyer and seller solutionand pays members a rebate figured on the home's sales price. Inaddition, real estate agents that participate in the program andare referred to CU Realty by a participating credit union, give upa portion of their commission at the closing, that goes towards arebate paid to the member of up to 1% of a home sales price onhomes the member sells or purchases. "My biggest fear is thatcredit unions will get disconnected in mortgage lending becausethey're not purchase volume driven," said Brancucci, adding that heappreciates that mortgage lending is a "very expensive commitmentand it takes a lot of volume to justify the expense. When it comesdown to a credit union deciding whether to invest in a brick andmortar facility or a new ATM, or choose to expand its mortgageactivity, it's likely going to go with whatever will give it thefastest return." Which is really a shame, said Brancucci, becausecredit unions have so many things going for them when it comes tomortgage lending and that allows them to make a solid mortgageoffering to members. "There are a lot of hard decisions creditunions have to make if they want to compete in the purchase marketand be in it for the long haul," said Brancucci. Several creditunions have already taken steps to transition from a refi to apurchase market. GTE FCU, Tampa, Fla., for example, recently cameout with two new ARMs products - a 5-1 ARM and a 7-1 ARM - thatoffer the borrower a fixed rate for the first five years of theloan and then an adjustable rate for a term up to 30 years. "Evenif the mortgage rate goes up after five years, at least the membergets a guaranteed rate that doesn't fluctuate for the first fiveyears," said Kim Yarnelli, vp of mortgage lending for the $1,653.9billion credit union. "So it's a good way for a member to get in toa home at a low rate." GTE FCU year-to-date originated $316 millionin mortgages, and as of October it sold $138 million on thesecondary market to Fannie Mae. The credit union is currentlyservicing $640 million in mortgages. Yarnelli said the falloff inthe credit union's mortgage traffic in recent months has been verynoticeable. Up to about a year ago, GTE was typically processingabout 400-500 mortgage applications a month and it maintained about1,000 applications in the pipeline from 2001 - 2003. But from Sept.20-Oct. 20 of this year, the credit union had about 160 newapplications and it's had about 700 applications in the pipeline.The credit union which serves approximately 177,000 members is alsoworking on strengthening its home equity product. Yarnelli saidmany members in the past year or two refinanced so they'd havemoney to fix up their homes. "Now that rates are going up, we wantthem to know that by using our home equity loan, they can still getthose home improvement jobs done," he said. In another initiativeto shore up its strength in the purchase market, Yarnelli said GTEFCU is working on establishing a network of relationships with arearealtors and developers. He estimates the latter group has thepotential to channel about $40 million in loans to the creditunion. When the refi volume was high, GTE FCU outsourced theprocessing of loan applications to two local and one nationalcompany. Yarnelli said he will probably pull back from outsourcing,but he won't eliminate his relationship with the companiesaltogether "just in case we have a huge influx in applicationsagain, but right now the volume doesn't warrant it." Desert SchoolsFCU in Phoenix, Ariz., has also been getting itself ready to dealwith the emerging purchase market. The $2 billion credit union hasa $690 million real estate portfolio. It originated YTD $285million in mortgages and sold YTD $132 million in loans to FannieMae. "The refi boom is over, now credit unions have to focus on thepurchase market," said Robin O'Rorke, vp/chief lending officer forDesert Schools. He explained that the credit union in Novemberbegan paying its loan officers commissions for purchase loans theyclose as a way to steer them toward those types of transactionsversus making refis. Loan officers are also being encouraged tostay in the field, meet with realtors and builders, and attendgrand opening events at home sites. The credit union also recentlybegan a Builder Discount Program with KB Homes, one of the largestbuilders in Arizona. O'Rorke said most builders require a$5,000-$10,000 deposit on a home before they'll start construction.But through the program, that deposit is reduced to $1,000-$3,000for members who are preapproved. In addition, the member is given a$1,000 gift certificate to use at the home builders dcor center."We're giving the member immediate conditional loan approval, sothe builder feels comfortable going ahead and starting the house,"said O'Rorke. Desert Schools' members who are in the market for anew home can also learn about homes that are for sale, and accessinformation about communities and realtor bios through the creditunion's Web site that's linked to the multiple listing service. Thecredit union uses CU Realty's program, so members additionallyreceive a 1% rebate towards their new home purchase. "Thedeveloping purchase market will separate out those credit unionsthat are in mortgage lending for the long haul from those who werejust in it on a whim because rates were low," said Brancuccireflecting on the evolving mortgage market. -

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