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NEW BRIGHTON, Minn. – Seventeen years after it was formed as CU Mortgage Services to help three Minnesota credit unions provide mortgage services to their members, CU Companies has evolved into the leading CUSO in the state with six subsidiaries and 54 credit union owners. The six latest credit unions to become owners of the CUSO are: Hormel Employees CU, Austin; St. Cloud City & County CU, St. Cloud; AE Goetze Employees CU, Lake City; North Memorial FCU, Robbinsdale; Minnesota Teamsters CU, Minneapolis; and Toro Employees FCU, Bloomington. Incorporated in July 1987 by NWA FCU (now called Wings Financial FCU), City-County FCU, Brooklyn Center, and Twin City Co-Ops FCU, CU Mortgage Services was founded during a buyers market to help credit unions compete against other mortgage lenders in Minnesota. Jeff Schwalen, currently president of Hiway FCU, St. Paul, was the CUSO’s founding president. He was succeeded by Doug Anderson, who was followed by Don Anderson (no relation). “CU Mortgage Services was the credit unions’ ticket to mortgage lending,” says Donald Anderson, who previously had worked as general manager/CFO of a manufacturing company and had served for 15 years on the board of directors of Twin City Co-Ops FCU. “The three founding credit unions didn’t have their own in-house mortgage division, so they were at the mercy of banks and other area mortgage lenders who funded mortgages for their members and then tried to cross-sell them other products.” Like most start up companies, the first five or so years of CU Mortgage Services’ life were relatively slow, but when the refi boom hit in 1992 business picked up for the CUSO. In 1994, NWA FCU decided to take the CUSO’s product in-house and the CU dropped its ownership share of CU Mortgage Services. After NWA FCU left, the CUSO picked up City & County CU, St. Paul. Anderson said other credit unions came into the CUSO fold after 1996. As the years went on, CU Mortgage Services began branching out into other areas “to be of greater assistance to credit unions,” Anderson explained. In 1997, the CUSO incorporated its real estate and title services subsidiary. Then in 1996 it added a realty subsidiary; in 2000 a financial planning subsidiary; and in 2004 it added auto resource and commercial lending subsidiaries. It began using the unincorporated “umbrella name” of CU Companies in late 1996-early 1997. The CUSO has a staff of 91 employees. “When the CUSO was first started to assist credit unions in the metro Minneapolis-St. Paul area, there wasn’t a way to reach out to credit unions outside of that metro area. We deliberately chose not to go out of the metro area until we had a solution to assist credit unions there,” explained Brad Crandall, president of CU Mortgage. By partnering with Prime Alliance Solutions, CU Mortgage gained access to a platform and business model it uses to assist credit unions in the entire state of Minnesota with their mortgage lending needs. The CUSO also prides itself on being able to serve credit unions of all sizes. “That’s the distinctive thing about our organization, it’s not just a fit for large or small credit unions. It’s a good fit for all of them. We can drop our platform into all credit unions’ offices and provide them with identical services,” said Crandall. Of CU Companies’ 54 credit union owners, some of the smallest are McKee Employees FCU, Inver Grove Heights which has 429 members and $1,341,635 in assets; and Latvian CU, Minneapolis which has 522 members and $3,416,979 in assets, as of Dec. 31, 2003. At the other end of the spectrum, the CUSO’s largest owners include CUs such as City-County FCU, Brooklyn Center, with 50,718 members and $405,712,000 in assets, and City & County CU, St. Paul with 43,896 members and assets of over $296 million. The CUSO brands and private labels every credit union site so the member perceives their credit union as their primary provider. The credit union earns a fee income and has the opportunity to hold the mortgage paper in their portfolio. CU Mortgage does the servicing on the mortgages and sells any mortgage a credit union doesn’t want to hold in its portfolio, to Fannie Mae. Crandall emphasized that the CUSO doesn’t solicit business or have relations with any Minnesota realty, but it does originate and fund mortgages for members who find homes to buy through a realtor. The CUSO also doesn’t get involved with subprime lending. “If a member comes to us who’s not A or B paper but we still think a loan for them makes sense, we speak with the credit union to create a product for them. If we determine this isn’t suitable, we counsel the member that it’s not a great time for them to buy a home and give them a plan with things they need to do and target dates. We’ve found if we do that, the member usually comes back for the loan,” said Crandall. “That doesn’t mean they may not go shopping for a mortgage elsewhere and find a loan with a higher interest rate. But the majority of the time I have members come back to me on the date I gave them with everything checked off on their `to do’ list. I tell them now they’re ready for home ownership,” he added. CU Mortgage has $17 million in its loan portfolio, and its delinquency rate is .96. While the CUSO prides itself on being able to provide services to CUs of all sizes, it realizes that when it comes to mortgages not all members’ needs are the same. Fixed rate products are the most popular among members of the CUSO’s CU owners, and adjustable rate mortgages are increasing in appeal. In addition, in August, CU Companies and CU Mortgage Services introduced a 40-year, fixed-rate product that requires a 5% down payment. With housing costs continuing to rise dramatically, Crandall said many Minnesotans are being priced out of the housing market. The CUSO’s new 40-year, fixed-rate mortgage makes homeownership more affordable and increases members’ purchasing power by lowering their monthly payments. “When a member makes a mortgage application with us, they’re not looking for 20 options, they want a recommendation,” says Crandall. “We’ll always show them the fixed-rate paper first, then we ask them about their objectives and listen to their plan. If we feel another product is more suitable for them, we’ll recommend that to them. We know the fixed-rate option is a conservative option they should consider because the payments aren’t going to change. But there are many times a first-time homeowner knows they’re only going to be in a home a limited number of years. In those cases, an ARM might be more suitable.” Over the last 24 months, more than an estimated 95% of the mortgages CU Mortgage Services originated were fixed-rate paper. The subsidiary has 22 agents and only charges a 4.25% listing commission. The CUSO estimates that policy has saved members an average $4,800 on their mortgage transactions. Anderson is continuously keeping his eyes open for new markets as possible areas for CU Companies to expand into. “When I took over the company we only had the mortgage company, we were a one lung engine. We needed something to diversify ourselves with,” he says. The CUSO’s two newest subsidiaries were both started up earlier this year – CU Auto Resource Center Inc. and CU Member Business Inc. Anderson says commercial lending will be “a diamond in the ruff” for the CUSO. It plans to originate and service business loans and participate out larger loans. As for auto lending, CU Companies bought City-County FCU’s auto purchasing CUSO the CU had operated for about six years. The CUSO has working relation with 26 dealers. While it’s still too premature for Anderson to discuss some of the ventures CU Companies is looking into, he said the CUSO is looking to form a national credit union realty alliance. The CUSO has a registered trademark – CU Realty – and has most of the standard operating procedures in place for credit unions and CUSOs. Anderson said CU Companies plans to formally announce the new venture by the beginning of 2005. He added that the CUSO has already talked with a Wisconsin-based credit union and they’ve sold it to the CU on a consulting fee. “I go to conferences and think why don’t credit unions do such and such instead of farming a particular product out to someone who’s not related to the credit union. To me, the real owners of CU Companies are the members of the credit unions,” Anderson said. -

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