ATLANTA and PINE BROOK, N.J. — For credit unions considering adding mortgage lending to their list of service offerings, asset size is not necessarily the deciding factor. Both million dollar and billion dollar CUs have found that partnering with a vendor is an effective way to both get a foot in the mortgage door as well as expand existing lending.
"Either small or large, I think a lot of credit unions have apprehension with mortgage lending," said Michael McGrath, president of CU National Mortgage, a wholly-owned subsidiary of US Mortgage Corporation. "Their loan sizes may go from a typical car loan to some home equity lending, where the loan sizes are $10,000-$50,000. With mortgage lending you're dealing with much bigger loan sizes, different regulations, different requirements and procedures. And first mortgage lending is fairly complicated."
To make things more palatable for credit unions, CU National created a one-size-fits-all solution that does not discriminate against or penalize the smaller credit unions, McGrath said. As a result, it is able to work with CUs of various sizes including the $1.2 million Shiloh of Alexandria Federal Credit Union as well as $2.3 billion Delta Community Credit Union. Shiloh is offered the same lending programs, technology and opportunities as the largest credit union CU National works with, McGrath added.
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The $83 million Novartis Federal Credit Union had experience in the second mortgage business, but turned to CU National for its initial venture into first mortgages.
"We did not have any aspiring dollar amount or percentage goals," said Ann South, the FCU's president/CEO. "We just wanted to offer that as a turnkey type of a product and service. Since it was up and running quickly it was successful in that we wanted–first mortgage lending to be represented in our portfolio of services." Novartis FCU is currently happy with the services the vendor provides and South said the CU has no plans to handle first mortgages on its own, although she added that, "there's always that possibility now."
As a vendor, CU National is able to provide a source of portfolio lending should a credit union decide to go that route. It can provide lending vehicles that fit individual CU asset liability needs, for example 1,3,5,7-year ARM programs. For CUs that are not interested in portfolio lending the vendor offers secondary market sources including Fannie Mae and alternative sources where CUs can get their members into a mortgage where they are still provided with the best rate and terms that are available in the marketplace, McGrath said.
Then there are the CUs that have the expertise and the asset size to handle the business, but turn to a vendor anyway. For Delta Community Credit Union the rationale was simple–it sought an expanded scope for its mortgage lending.
"We're in a very different situation than some of the smaller credit unions," explained Pam Davis, vice president of real estate at Delta CCU. "It's not that we don't have the expertise here in the office. Basically, we're relying on a partner because we want to lend in 50 states. A vendor gives us that opportunity to do that without staffing up. Plus, mortgages are very cyclical. So they take care of the staffing of the originators, underwriters and processors. Could we do it on our own? Absolutely. But I don't see us making a change to go off on our own any time in the near future."
Delta CCU conducts the origination process in-house as well as relying on CU National. The credit union closes an average of 50 mortgage loans per month and closed $108 million in 2006, Davis said. Despite mortgages being cyclical in nature, the CU sets yearly goals. One of its current major goals is to originate 50% of its mortgage loans.
"Currently, we're originating about 40%, so we have some work to do," Davis said, "but overall, we're happy with the partnership and how the program is progressing." –[email protected]
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