WEST PALM BEACH, Fla. – Credit union mortgage experts have heard all the explanations about why credit unions have had so much difficulty gaining a greater share of the mortgage lending market. They acknowledge some of CUs' “excuses” are valid, but as one of them put it, “They've been a crutch, it's time for credit unions to move on.” “As an industry we've been given wonderful tools that take the rocket science out of doing mortgages,” says Tracy Ashfield, president, Strategic Mortgage Solutions. “The days when credit unions had to manually underwrite every loan are over. So while some of the reasons credit unions give for not offering mortgages are valid, they're not enough to explain away the situation on why credit unions aren't as strong in mortgage lending as they are in auto,” she says. Indeed, according to Callahan & Associates' recently released 2006 Credit Union Auto Lending Report, credit unions not only reached an all-time high market share of 20.5% in August 2005, but in four states a credit union is the top auto lender. Conversely, while real estate loans grew to nearly half of CUs' loan portfolio as of Sept. 30, 2005, according to Callahan, CUs' mortgage share hit a high of 2.5% in December 2002, and steadily fell since then – to 2.3% in 2003, 2.2% in 2004 and 2.0% as of June 2005. Ashfield acknowledges that a mortgage loan may have more paper work to process than other types of loans, “but in mortgage lending we enjoy standardization, automated underwriting engines, uniform documentation for all the things we use. When credit unions do other types of loans, they have to pay for new compliance forms. They can't just grab documents off the shelves. So they can in fact be more complicated than doing mortgages.” Attitude Counts In comparing CUs' attitude toward mortgage lending and auto lending, Ashfield offers that the major difference in credit unions' attitudes between the two is the “strong sales culture that's an umbrella over credit union auto lending activity, a `spirit of sales' that surrounds credit unions' auto lending strategies.” Have credit unions translated that to mortgage lending? No, she says emphatically. When it comes to mortgage lending, credit unions have been ingrained in a manufacturing culture. “Whereas the emphasis in auto lending is let's get the business and that means getting members pre-approved for auto loans and finding ways to increase direct and indirect lending, in mortgage lending the culture hasn't been what do we have to do to get the business. Instead, we've been more internal on getting the loan fulfilled like when a member comes in to refinance a mortgage. That's why credit unions have such a difficult time competing in the purchase market,” says Ashfield. In fact, she says, “now that the refinance boom is over, instead of credit unions saying `we've done a great job building a great manufacturing machine, now what do we need to do to have a sales culture,' they're taking a `the party's over' mentality.” She adds that, “Credit unions didn't hide under a rock when dealers came out with their 0% auto financing offers. They figured out what they needed to do to get the auto loan business. They need to do the same thing with purchase mortgages.” Fear is Contagious Joe Brancucci, president, Prime Alliance Solutions, agrees with Ashfield's assessment and points the finger of blame at managers and other officials at credit union headquarters who have the attitude that mortgage lending has too many risks and can't be managed. “If there's such a fear of it at the headquarters, then that fear pervades down to the branches,” he says. “There's the perception of the complexity of mortgage lending that has some credit union CEOs and volunteers thinking it's too complex and involved for their credit union to get involved in. There's fear and concern over exotic mortgage products, and there's good reason to be cautious. But we need to look at the business model and see what it will take for credit unions to thrive and flourish, and any reasonable person will see how important mortgage lending is,” says Brancucci, adding that, “Fear and lack of understanding feeds a vicious cycle.” “The reality of auto lending is the majority comes from indirect lending and a lot of that comes from aggregation. That's allowed credit unions to get rid of the complexity of having to handle the dealer relationship,” says Brancucci who's also vice president of lending and chief lending officer at BECU, Tukwila, Wash. “So there's no great fear about that (indirect auto lending) anymore because someone else is managing the technology,” he adds. The situation is different in mortgage lending, says Brancucci, and that takes a lot of understanding of the market noting that, “It takes a lot of years to build a purchase money strategy. It's not for the faint of heart.” “Once you get over the fear of the product and the risk, then you have to figure out the distribution of the product. Realtors control 70% of the purchase money transactions, then there are the builders, then the random suppliers. If you only go after the random providers you're going after a very small portion of the market. Credit unions have to those actually distributing the products, the realtors and builders,” he advised. That might be easier said than done. Brancucci says realtors have developed the perception of the credit union world as being one of lenders that are just short of the mark. “And to some degree we've allowed that to happen,” he says. Realtor Relations Critical Bob Dorsa, president, American Credit Union Mortgage Association (ACUMA) agrees that building relations with realtors is crucial if credit unions intend to remain competitive in the purchase market. “The refi boom was the low lying fruit for credit unions. Members were coming out of the woodwork to finance their mortgages with their credit unions, it was easy. Why credit unions succeeded so well in the refi boom and haven't during purchase markets is mostly because purchase loans involve realtors. That's been our biggest deficiency,” Dorsa says. From conversations he's had with the National Realtors Association, Dorsa says realtors have a very negative impression of credit unions as mortgage lenders. According to him, realtors don't believe credit unions are as proficient as banks or the Countrywides. They see CUs as having a 9-to-5 mentality, they're order takers, not aggressive, and they're not going to bend over backwards to get the deal done. They just do the same day-to-day routine. While that characterization is incorrect, Dorsa says realtors aren't totally to blame for their misconception of CUs. “Anything credit unions have set their mind to do, be it checking accounts, auto lending, ATMs or shared branches, they've gone full speed ahead with even when others said it couldn't be done. When credit unions really want to do something, they're very effective. We as an industry have simply never really felt mortgage lending is that important, and that's why we haven't done better,” says Dorsa. In fact, he says, “when credit union people hear the word mortgage, they head for the hills. Mortgage lending has the resonance of a complex industry, credit unions can't afford the professionals, they don't want to mix salary and commission people. I hear the same responses I use to hear about CUSOs 10 years ago,” says Dorsa who used to head up the National Association of Credit Union Service Organizations (NACUSO). When it comes to mortgage lending, Strategic Mortgage Solutions' Ashfield says credit unions are really their own worst enemy. “Credit unions are steeped in the belief that mortgage lending is so complicated. The reality is, if real estate is going to be a core product for you then you have to look around and ask yourself why have I made it so difficult to do business with me,” she says. Part of the answer, says Ashfield, is that while credit unions have grown in their scope including having multiple branches, expanding their fields-of-membership and using electronic delivery channels, their real estate lending activity is still very centered in their home office where they control and deliver the product in a very centralized fashion. “For auto loans, I can go to any branch, call center or online and know I'll get quality information and service and be able to file an application on the spot. “With real estate though,” she continues, “even though credit unions have spread their wings in other ways, I can walk into a $1 billion credit union with branches, ask them what happens when one of their members comes into a branch with a mortgage question, and they'll tell me they're transferred to the mortgage department at the headquarters. Think about this: if I can't be served in my branch, do I consider that convenient for me as a member? Yet credit unions think it's perfectly acceptable and not strange at all that depending on the type of loan a member wants, they may have to weave themselves back to the credit union headquarters,” says Ashfield. Ashfield believes it all comes down to credibility with the members. If a member comes into a branch to inquire about a loan and a branch employee talks about the different mortgage products the CU offers, “even if the member is then handed off to the mortgage expert at the credit union, they still feel the person they initially spoke with is involved with the transaction. That gives them enough information for the credit union to come off as being credible.” Ashfield says, “It's time for credit unions to take a hard look in the mirror and admit their loan officers are all order takers. They need to ask about remote delivery channels. When we've got tools that allow a member to apply for a loan at 3 a.m. in their pajamas, then there's no reason credit unions should be making anyone come into their headquarters to talk about mortgages. While there are things we can't control, let's address the things we can control. It's time to look in the mirror and for credit unions to be honest with themselves.” Brancucci is confident credit unions can compete in the purchase mortgage market, but “it will take creativity. They can't win with commodity products. “Credit unions also have to get rid of their `silo' structures and approach to product delivery where everyone has a specialty. You can't cross-sell on a silo structure. I would challenge every credit union CEO to see if they're built on a silo.” Brancucci urges credit unions to get more creative at the community level, then build a reputation. They have to have long-term goals, be patient, and have a layering process each year, he says. Most of all, credit unions shouldn't be afraid, and realize there are plenty of folks in the mortgage industry who are available to help them. -

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