Just as you wouldn't climb Mount Everest without the expert guidance of a Sherpa, a credit union needs expertise to build and maintain a successful mortgage portfolio. Especially now, with the many regulations that are in place in this particular corner of our business.
The problem for too many mid-sized and smaller credit unions is there is a lack of this mortgage industry talent at a reasonable price. Many of these credit unions make a valiant effort to educate and train their loan people, but the concerns over compliance and doing everything just right can be overwhelming.
This is especially true when it comes to the secondary market. Originating mortgages with an eye toward profitably selling them into the secondary market gets into an additional layer of complexity that requires not only business expertise, but intimate familiarity with the finer points of the Home Mortgage Disclosure Act, TRID (TILA-RESPA Integrated Disclosure) and the other alphabet soup of ever-evolving regulatory requirements.
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While the complexity of the mortgage business increases when you add in the secondary market factor, some of that is mitigated if a credit union wants to hold the loan in its own portfolio with no intent to sell it. That has its shortcomings as a strategy for a credit union, though, because this tends to be a variable cycle.
Sometimes a credit union finds itself with more loans on the books than it needs, and the best strategy is to sell some of those loans on the secondary market. At that point, if there are any shortcomings in the compliance related to the original mortgage, it becomes problematic to sell it and salvage much revenue. A credit union could be stuck selling it to the lowest bidder, receiving pennies on the dollar compared with what it could have yielded had it been done in strict compliance.
Some credit unions tell us they want no loans on their books, but merely want to be able to help their members find the best rate on a mortgage. Others want the option on a case-by-case basis. What they have in common is a desire for the best approach for the member's benefit.
Credit unions are understandably intimidated, yet they still want to be able to serve their members, and in an improving economy, more and more members are going to be interested in buying a home. How can a credit union deal with this in the long term?
Historically, the choice has come down to an either-or proposition. Either hire the (expensive) talent to do it yourself, or outsource the mortgage origination function to a partner. There are advantages and disadvantages to either of those approaches, depending on the unique membership characteristics of your credit union and what you want to accomplish.
However, some outsourcing providers aren't requiring a lifetime commitment, and can instead serve as a temporary solution while a credit union builds up its own mortgage origination and servicing capabilities.
A credit union can leverage the partnering relationship as a sort of learning laboratory. It can take the opportunity to learn from the outsourcing partner and lean on that partner to help train the in-house talent at the credit union. It may be a short term arrangement, two years or less, in which the credit union develops its own mortgage platform.
This approach can get the credit union acclimated to the various agency products, the entire mortgage process, and of course the regulations and guidelines. What they learn will help them establish the best types of software and electronic solutions to put in place once the credit union goes out on its own.
By emphasizing training and education, a credit union builds its own expertise rather than recruiting costly existing experts. And along the way, the credit union can gradually take back from the provider the pieces that its people have mastered.
Jackie Adams is Vice President of eCU Mortgage, a CUSO of First Service CU. She can be reached at 713-676-4365 or [email protected].
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