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MADISON, Wis. – CUNA Mutual Group has signed a letter of intent to sell its CUNA Mutual Mortgage Corp. to PHH Mortgage, a subsidiary of the $9 billion PHH Corporation. Should all of the deal’s conditions be met, CUNA Mutual anticipates closing the deal by the end of the year. The move will mean the layoff or reassignment of 175 CUNA Mutual employees who currently work at the group’s Fitchburg, Wisconsin based facility. Employees there will be given the opportunity to be reassigned within CUNA Mutual or to receive on-site job retraining, career counseling and an on-site career fair, the insurer said. CUNA Mutual put the move into the context of the changes it said it needed to make to prepare for the future, including focusing more closely on what it considers its “core competencies” and shedding other businesses where, it said, it couldn’t offer as many top of the line solutions for CU needs. “The marketplace in which CUNA Mutual competes is changing dramatically,” said Jeff Post, CEO of CUNA Mutual Group. “The number of credit unions is declining, and we face increasing global competition in the financial services arena. As we reviewed our mortgage business it became quite clear the additional investment required to deliver efficient, best-in-class services to our credit union customers and their members could not be justified. “This decision is the first step in building a new CUNA Mutual – a company that remains committed to the credit unions, but doesn’t try to be all things to all credit unions.” The move represents a significant change. CUNA Mutual has been involved in helping credit unions offer mortgages to their members since 1978, when the CUNA Service Group and the CUNA Mutual Investment Corp. jointly began the effort. In 1998, CUNA Mutual Group purchased CUNA Mortgage Group from CUNA and Affiliates and in 2000 merged it with CU Mortgage of California to form CUNA Mutual Mortgage Corporation. But CUNA Mutual Group spokesman Rick Uhlman said that a strategic review of the insurer’s mortgage operation indicated that merely having had a tradition of offering mortgage services could not substitute for keeping the company targeted on changes in the credit union industry. While it’s no secret that CUNA Mutual is the common bond insurer for 94% of credit unions overall, the firm only insurers 84% of the $100 biggest credit unions, Uhlman explained, adding “We can do much better on the things that represent our core competency.” As part of the overall strategic review, CUNA Mutual is looking at how it conducts its “back office” operations with an eye toward trying to make sure they are as efficient as possible, Uhlman explained, including reviews of other businesses which may not be found to represent the insurer’s core competency. But Uhlman also stressed that the insurer was not necessarily looking to sell other service center operations which may not be core competencies but may look to partner with other providers or look for other solutions. “The reviews are ongoing,” he said. For its part PHH remained mostly closed mouthed about the pending purchase which seems likely to represent a large mouthful for the company to digest. According to CUNA Mutual Group, their mortgage arm serves roughly 1,400 credit unions around the country or well more than double the number of active relationships with credit unions that the mortgage firm said it has now. “We at PHH Mortgage are looking forward to working with CUNA Mutual Mortgage Corporation clients and customers with the conclusion of the planned asset purchase. CUNA Mutual selected PHH Mortgage due to our ability to enhance the mortgage experience for credit union clients and their customers,” said Terry Edwards, CEO of PHH Mortgage. Other mortgage executives who work with credit unions generally applauded the move and anticipated that it will mean better mortgage services for many CUs across the country. “Overall, I think this is really good news for credit unions,” said Christine Kimball, manager of Credit Union Mortgage Associates, a subsidiary of Carteret Mortgage, a firm which seeks to work with medium to smaller credit unions that either do not offer mortgages yet but want to or who want to grow their initial effort in the area. Kimball said that she was not terribly surprised that CUNA Mutual was getting out of the mortgage business since many in the industry did not consider mortgages to be CUNA Mutual’s greatest strength. She cited having access to an underwriting platform either approved by or originating from Fannie May or Freddie Mac as being one of the most important factors that a mortgage service provider could offer. “In this market it’s about speed and if you can offer a product which will be ready for the secondary market,” Kimball said. Thanks to this move, many more credit unions should have access to that sort of service, Kimball said. Kimball described the credit union mortgage space, post sale, as dominated by two large players, PHH Mortgage and Prime Alliance, a CUSO that claims to serve 75 credit unions directly and 12 mortgage companies that serve credit unions. But as big as it is, claiming to have about 40% of the credit union market, it will still likely be smaller than the PHH Corporation credit union division after the purchase goes through. As of press time, no one from Prime Alliance was available to discuss the credit union mortgage market after the sale. -

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