Flexibility, Ability to Adapt to Market Cycles Key to Mortgage CUSOs' Business Models
WEST PALM BEACH, Fla. - Mortgage CUSOs, probably more than CUSOs in any other market because of the nature of the mortgage industry, need to build an element of flexibility into their business plans that allows the CUSOs to adapt to the refi/purchase cycles of the mortgage market. "The mortgage...
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WEST PALM BEACH, Fla. – Mortgage CUSOs, probably more than CUSOs in any other market because of the nature of the mortgage industry, need to build an element of flexibility into their business plans that allows the CUSOs to adapt to the refi/purchase cycles of the mortgage market. “The mortgage CUSO business plan absolutely has to be flexible,” insists CU Members Mortgage VP Linda Clampitt. “When refis are falling in the door, you find CUSOs are not trying to take in more clients so they can maintain their high customer service levels and time frames. It becomes more of a take care of the credit unions you have signed up,” she adds. That focus changes when the mortgage market shifts into the purchase gear, the loan pipeloan slows down, and mortgage CUSOs work to bring in more credit union clients. In 2003 “when CU Members Mortgage account reps were in account maintenance mode,” the company added only 20 CUs to its client list, says Clampitt. In 2004, more than 100 CUs signed on with CU Members Mortgage. According to Brad Crandall, CEO, CU Companies, it’s easy during refi booms, for mortgage CUSOs to overstaff and take on a lot of technology “without stopping to realize that the boom will only last temporarily. Then the CUSOs find themselves with too much space, employees and technology.” Crandall says CU Companies has always tried to stay staffed for the traditional purchase market, even during periods of high refinances. “The refi market gives you opportunities, but you can easily set yourself up for failure if you design your business around a few highs,” he offers. Over the 18 years that CU Companies has been in business – it was founded in 1987 as CU Mortgage Services and now includes six subsidiaries – Crandall says the strategy the company uses to position itself with credit unions hasn’t changed. “We try to sell ourselves more as a department rather than a vendor. We consider ourselves complementing the mortgage lending efforts of our credit union owners as opposed to being just a vendor and the flavor of the month. We try to represent our organization the same as the credit union would to its members. They know we’re owned by their credit union, so it doesn’t have to be transparent to the members.” Likewise, as branding has become more important to credit unions, Clampitt says CU Members Mortgage now works more closely with credit unions’ marketing directors helping them develop marketing campaigns, identifying what products in their area are hot, and discussing which products are doing well and which aren’t. Clampitt says she meets with marketing directors at least twice a year to go over materials. “Up until about two years ago, it wasn’t as important to credit unions as it is now that everything be branded in the credit union’s name. It’s more important to them now. Even though they’re outsourcing their mortgage services, they want it to look to their members like it’s the credit union’s mortgage program,” she explains. Joe Zampitella, president, Members Mortgage agrees that in a purchase market “even more so than in a refi market,” it’s critical for mortgage CUSOs to promote to CUs that they’re available and prepared to support CUs’ mortgage efforts so the relationship stays between the credit union and the member. “It’s not just a way for CUSOs to differentiate themselves from the Countrywide’s of the industry that are established with business plans to just get loans and do the servicing. It’s also a way for CUSOs to reassure credit unions that they’re not interested in taking the relationship from the credit union,” Zampitella says. Formed in 1994, Members Mortgage has 90 credit union clients in Maine, New Hampshire, Massachusetts, Connecticut and Rhode Island. Ironically, says Zampitella, credit unions in the New England area have been reluctant to become seller/servicers despite their long history with mortgage lending. Consequently, when CUs need to sell loans on the secondary market and rely on someone to do that for them, they wind up giving up their servicing rights on the loans. Zampitella wants to change that. “It’s time for them to control their own destiny,” he says, adding that he’s trying to get credit unions to be eligible now to sell direct to Fannie Mae or Freddie Mac “while interest rates are somewhat stable. That way, if they run into a serious liquidity crisis down the road, they won’t be held over a barrel by the Countrywide’s. Instead they’ll be in the position of being able to sell a portion of their portfolio when they have to.” Over the 21 years Central States Mortgage Company has been in business, President Richard Jungen has seen his share of “tremendous” cycles in the mortgage market. Still, his business plan and strategy, he says, has always been focused on the purchase market. “We don’t rely on refi dollars,” says Jungen, adding that the CUSO is set up “give us the ability to be very efficient in the purchase mortgage market.” Prime Alliance Solutions President/CEO Joe Brancucci agrees that “by developing operational efficiency in a certain product area you can get certain nuances down that allow you to have experts outside the organization” in both the refi and purchase mortgage market cycles. Founded in 2000, the CUSO had the advantage of starting business when lenders and consumers were enjoying the latest refi boom. But President/CEO Joe Brancucci said, “I knew the refi boom was going to end one day and we’d have to be able to help credit unions develop purchase money business.” The Prime Alliance Solutions president says having a broad product line is key for a mortgage CUSO being able to ride out refi and purchase market cycles. “In the purchase market you have to be able to define who you’re going after. The mortgage CUSOs that are very successful are the ones that are very niche oriented or become incredibly operationally efficient. There’s not one example of a CUSO that delivers all things to all people,” says Brancucci. -
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