HIGHLANDS RANCH, Colo. – Credit union mortgage experts have said it repeatedly – if credit unions expect to compete in the purchase market and garner a greater share of the mortgage market, they have to change their mortgage loan delivery paradigm and market themselves as credible mortgage partners to members and other mortgage industry participants.

Tom Davis, president/CEO of Davis & Company and vice chairman of NACUSO has teamed up with other CUSO and mortgage experts to form a holding company to give credit unions the tools to do just that.

The holding company will be called CUSO Development Company, LLC, and it will serve as an umbrella company over various subsidiaries the first of which, a national mortgage CUSO, is in the initial start-up phase. Both the holding company and national mortgage CUSO are expected to open in early 2007. The name of the CUSO hasn't yet been decided.

But the mortgage CUSO is just the beginning, says a second partner in the venture, Jim McCourt, former senior vice president of CUNA Mutual Group's Homeownership Solutions. Other CUSO subsidiaries that will be formed down the road under the holding company will provide services such as mortgage and title insurance and real estate brokerage.

McCourt will serve as executive vice president of business development and work with getting credit union partners signed up as investors and manage relationships with them.

The third partner in the initiative is Cory Mackwood who formerly was CEO of Credit Union Mortgage Company and also formed The Member First Family of Companies, which was ranked by Callahan & Associates in December 2004, as being the 10th largest CUSO. Mackwood will serve as president/CEO of CDC.

Mackwood said co-founder Davis' formal title “is still being developed,” but he'll be in charge of developing business strategy.

The three professionals are in the process of talking with potential investors who will own 75% of CUSO Development Company. The investors, said Davis, will be mid-to-large size CUs with assets of $250 million to $2 billion that are already doing mortgages successfully by themselves. The remaining 25% ownership will be held by Davis, McCourt and Mackwood.

“Typically with mortgages when one market gets depressed other markets tend to pick up, so there are regional as well as national cycles. Operating a national mortgage CUSO will allow us to ride out those cyclical regional changes,” said McCourt.

“This lends phenomenal strength through diversity to the success of the CUSO,” said Mackwood. “Credit union investors in the CUSO will have the luxury of not having all their eggs in one basket. The region where a credit union is located may go through a difficult cycle, but because the CUSO has business in different regions of the county that provides investors with a sustainable level of non-interest revenue during times when a credit union's mortgage activity might otherwise be struggling.”

The mid-to-large size CU investors, he explained, will act as “regional hubs” for small credit unions that will have the opportunity to have a Class C ownership with the company by making “a nominal investment,” said McCourt.

Over 100 small CUs are expected to have a Class C ownership level.

“Getting small credit unions involved under a Class C ownership is necessary if the credit union industry intends to break out of the dismal 2-3% share of the mortgage market it holds. Smaller credit unions don't think of mortgages as a core product, they think it's just a product for larger credit unions. We feel they need to be more involved to bring them to the table,” said Davis.

He said the holding company will be set up in such a way “to allow credit unions to take advantage of a wholly-owned CUSO and enlarge it to a multi-owned CUSO model.”

For example, McCourt explained, credit unions typically target certain times of the year to do mortgage marketing. But the national mortgage CUSO will implement a comprehensive marketing campaign “to provide a consistent message and steady stream of marketing instead of just at certain months.”

Another unique feature of the CUSO model will further lower participating CUs' operating expenses. When the credit union invests in and becomes a partner with the CUSO, their mortgage loan staff will become employees of the CUSO.

“Part of the reason a credit union wants to become a partner in the CUSO is to remove their expenses of offering mortgages,” said Mackwood. “So far the credit unions we've met with are very supportive of this idea and are agreeable to doing whatever is necessary to do that. None of them have an issue with their mortgage loan staff becoming CUSO employees.”

“The idea is to make mortgage lending more manageable for the credit unions by taking responsibility for the fixed expenses of the product,” said McCourt. By doing that, he said the CUSO expects to increase the mortgage business for its credit union partners by 20%.

The idea of forming CUSO Development Company, LLC, said Davis, came out of extensive focus group research he's done with members over the past several months concerning mortgage lending. When asked what they want from their mortgage experience, members stressed factors such as doing business with someone whose credit union provides good service, is convenient and has their best interest at heart.

“We want to provide members the desired mortgage experience,” he said, adding, “each one of these elements also have an emotional component that credit unions need to appeal to.”

“A lot of credit unions think since the refinance boom is over there's not a lot of mortgage loan business available, but that's not true” Mackwood commented.

“In fact, there's a lot of home financing business going on out there,” he added. “There's still trillions of dollars in home sales being transacted. The market has shifted from a walk-in, order taking environment to an aggressive marketing environment, and credit unions have to have the proper tools if they intend to compete in that market. Credit unions need to create revenue stream and return-on-business year after year after the refinance business goes away if they ever expect to increase their share of the mortgage market. Our objective is to tie all the components of the value chain together, capture the member's entire home buying experience including their actual move, and also drive down the cost of each of the components to the member.”

- [email protected]