Navy Federal Credit Union circles the nation's shores with members clustered in some of the hottest housing markets.

SAFE Federal Credit Union, landlocked in the middle of South Carolina, is increasing its mortgage business in a market it also sees as robust.

Navy Federal ($81.5 billion in assets, 6,994,229 members) is the nation's largest credit union and 81 times larger than SAFE ($1 billion in assets, 115,536 members). The two intersect geographically only in Columbia, S.C., the state's capital and home of the 100-year-old Fort Jackson Army base.

SAFE's headquarters is in Sumter, about 45 miles east of Columbia and home of the Shaw Air Force base, whose employees formed SAFE in 1955.

Despite their size difference, both see similar trends: Housing inventories are low, prices are rising and builders aren't keeping up with demand.

“It's a seller's market,” Brett Harvey, assistant vice president of mortgage services, said.

The same words came from Randy Hopper, SVP of mortgage lending at Navy Federal's headquarters in Vienna, Va. The area is home to many current and retired military personnel, which is to say Navy Federal members or potential members.

As interest rates have risen since November, the refinance boom has deflated while purchases haven't made up for the difference from last fall's origination highs. First-quarter mortgage originations for all types of lenders were either up only slightly or down from year-ago levels.

The drop in refinances combined with slow growth of home equity lines and purchases is showing up in portfolios as real estate takes a slightly smaller share of total credit union loans. As of March 31, real estate accounted for 49.6% of loans, down from 50.3% a year earlier.

The biggest players have an outsized impact on the industry's overall numbers, and that can be seen in mortgages. The five largest credit unions by assets accounted for 13% of all loans and 16% of all types of real estate loans on credit union books as of March 31. This included a 21% share of 30-year fixed-rate mortgages and a 45% share of adjustable-rate first mortgages.

As of March 31, the top five are:

Navy Federal. Its first mortgages grew 9.1% to $27.3 billion.
State Employees' Credit Union, Raleigh, N.C. ($36.5 billion in assets, 2,227,734 members). First mortgages grew 6.9% to $15.4 billion.
Pentagon Federal Credit Union, Alexandria, Va. ($22.4 billion in assets, 1,517,949 members). PenFed's first mortgages grew 2.6% to $11.6 billion.
BECU, Seattle. ($17.2 billion in assets, 1,023,268 members). BECU's first mortgages grew 17.2% to $4.7 billion as of March 31.
SchoolsFirst Federal Credit Union, Santa Ana, Calif. ($13.6 billion in assets, 747,327 members). First mortgages grew 13.8%.

The top five's first mortgage loan portfolio was $61.9 billion on March 31, up 8.1% accounting for 17% of all credit union first mortgages.

Among the other 5,732 federally insured credit unions, first mortgages grew 10.6% to $299.4 billion. These others included SAFE, which held $199.4 million in first mortgages March 31, up 7.6%.

Outside of credit unions, the overall trend for mortgages isn't as clear for the first quarter. The Mortgage Bankers Association showed a small increase from a year earlier.

The MBA augments reports from members with a predictive formula for its numbers, while ATTOM Data Solutions in Irvine, Calif., relies on counts from property records in counties covering 80% of the U.S. population.

The numbers are not expected to be exact matches, but usually they point in the same direction.

Not so in the first quarter. The MBA reported that originations were $361 billion from January through March, 3.1% higher than the first quarter of 2016. According to the NCUA, credit unions accounted for $30.6 billion of those originations, up 16% from a year earlier and accounting for a record 8.5% share of U.S. first mortgages.

The MBA reported purchase loans for all lenders rose 15% to $212 billion, while refinances fell 10% to $149 billion. ATTOM showed originations were down 21% as purchases fell 14% and refinances fell 26%.

For prices, the housing market is softening, ATTOM Data Solutions SVP Daren Blomquist said.

“There is, I believe, some weakening of demand, especially from buyers using financing, given the uptick in interest rates at the end of the year. That now makes it more expensive to buy a home, even if you had the same home price,” Blomquist said.

Rates on 30-year fixed-rate mortgages fell to a low of 3.5% last summer, but have now risen to about 4% and are likely to rise to about 4.5% by year's end, according to CoreLogic.

CoreLogic predicts overall originations will fall 18% to 20% this year, even as purchase loans and home equity lines of credit rise. Refinances had been expected to fall in the fourth quarter, but the drop finally occurred this year, Blomquist said.

“There's also not a lot of inventory available. That puts downward pressure on the number of sales as well when you don't have a lot of great inventory available for sale, especially in some of the hottest markets around the country,” he said.

Home equity lines were down among all types of lenders, but were up for credit unions. HELOCs grew 21.6% among the top five and 5.8% among the rest of credit unions.

Purchase volumes are up 10% over a year ago. Refinances remained healthy through February, and have dropped off since then as mortgage rates have risen. As a result, refinances have fallen from about 35% of volume a year ago to 20% of volume this spring.

Hopper said the market is so strong in some markets that houses are often sold without an open house.

“As soon as they list, they're starting to get offers, sight unseen,” he said. “There are so many tools online that allow you to check out comps and pictures. It speaks to how challenging it can be to get an offer accepted these days.”

About 60% of Navy Federal borrowers are first-time homebuyers. Half its borrowers use VA loans.

Navy Federal has made a specialty of navigating the complexity of VA loans. It also takes other steps to ease the home-buying process for members, regardless of their loan type.

It counsels buyers through a pre-qualification process they will need to begin shopping with a specific loan and interest rate. It can also refer buyers to its network of brokers through its RealtyPlus program, which provides discounts on commissions at closing. For example, a borrower would get back $900 on the sale of a $174,000 house and $1,200 back on a $210,000 purchase – a total savings of $2,100.

“For us, as a relationship lender, it's really about us putting our members in the best situation possible so they can put their best foot forward when making an offer on a house,” Hopper said.

SAFE also considers itself a relationship lender, but doesn't have the profile of Navy Federal as a mortgage lender.

About 70% of its loans originated in April and May were refinances for debt consolidation or making other purchases, like boats. Many of the loans use SAFE's cash-out refinances, which can be as high as 95% loan to value, Brett Harvey, assistant vice president of mortgage services, said.

Interest in purchase loans is reflected in an increase in applications, Harvey said.

“A lot of them are shopping,” he said. “It's a matter of getting them from pre-approval to closed status. That's the challenge. We're seeing an uptick in purchases, but it's not as high as we thought it would be.”

Credit unions as a whole sold 35% of the value of first mortgages originated in the first quarter. SAFE retains and services all its mortgages as part of its strategy to offer intimacy and build trust, Vice President of Marketing Toby Hayes said.

“We're not the big bank; we're the small credit union. You can come here and make your payment,” Hayes said. “We really depend on the service we provide to them from the time of application to the time that loan is paid off.”

SAFE launched a marketing campaign in early June to raise awareness of its mortgages. “Traditionally, it's hard to get people to wrap their minds around the fact that credit unions do more than just auto loans,” Hayes said.

The campaign promotes mortgages with low down payments. For example, one is a conventional loan with a 3% down payment targeted to first-time homebuyers and millennials.

One sign of the end of the recession is that millennials, once barely able to buy homes, are increasingly looking at new homes and more expensive homes. Sometimes they have to wait.

“There are not enough contractors to go around,” Harvey said. “They're flooded. They're scheduled two months out.”

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Credit Unions Strive for Mortgage Gains as Market Wavers

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