Credit unions as a whole will continue to grow their share of the mortgage market in 2015 and into 2016, say industry experts.
The "secret is out" that credit unions offer mortgages, "and we are good at it," said Anita Domondon, VP of loan administration for Meriwest Mortgage, a subsidiary of $1 billion Meriwest CU in San Jose, Calif.
Last year was a transition period from refinances to purchase loans.
"As more purchase loans are made, Realtors are being exposed to credit unions and they are finding we offer exceptional service at competitive rates," she said. "We are able to deliver a positive experience, and we are more than capable. No longer do people think credit unions do car loans but cannot do mortgages."
Still, some credit union mortgage officials said the home loan market is still looking for definition. They pointed out the tremendous upheaval that started roughly a dozen years ago with exponential appreciation in many markets. The boom cycle was followed by a confidence-shattering crash, and since then, a market dominated by investors making cash purchases of bargain-priced homes, and homeowners content to simply refinance to take advantage of historically low interest rates.
Matthew Abbink, VP at CU Members Mortgage in Dallas, said he expects a "return to market fundamentals" this year.
"As we have moved out of the Federal Reserve's quantitative easing we will see a market based heavily on purchase volume as refinance volume will continue to retract," Abbink predicted. "HARP expires at the end of 2015, so credit unions need to encourage their members who are underwater to refinance their loans."
As purchase loans become the main source for mortgage volume in 2015, and job growth continues to improve, there will be more people buying and selling homes near their new jobs, according to Abbink.
The purchase market "should be a strong source of business for credit unions," he said. "First-time home buyers recently received lower down payment requirements from Fannie and Freddie — to 3% from 5%, which lowers the entry barrier."
Because interest rates took a tumble in late January, CU Members Mortgage saw an increase in refinances. However, Abbink expects this uplift will be temporary, as it is strictly a rate-based uptick.
"I still see a move toward the large percentage of the business being purchase transactions," Abbink said. "All of those factors — a stabilizing economy, encouraging job growth and less stringent underwriting — lend themselves to an improving marketplace in 2015."
Tim Mislansky is senior vice president and chief lending officer for $2.9 billion Wright-Patt Credit Union in Beavercreek, Ohio, and the president of mortgage CUSO myCUmortgage.
Mislansky said that loan application volume shoot up 40% in the first two months of 2015, but he takes that increase with "a grain of salt" because in his service area winter the previous year was really cold, which artificially deflated the numbers in January-February 2014.
Looking ahead at the final nine months of 2015, Mislansky said he is "optimistic" regarding the opportunities credit unions have.
"In the last couple years we have gained market share because we are community based and consumers trust us," he said. "I have seen credit unions proactively building relationships with Realtors, with builders, with members, with community groups. There is still backlash against the bigger lenders because they still are picking up fines from the CFPB. There still is reputational damage, so there is room for improvement."
According to Mislansky, the fact Fannie Mae and Freddie Mac have reintroduced 97% loan-to-value loans is big for CUs.
"The loss ratios on 3% down vs. 5% down were not statistically significant. That is a perfect product for credit unions because our audience, by and large, is Middle America. These people sometimes have difficulty saving for a down payment. Given who we serve, we should be better than other lenders on that product."
Awareness Gap
Mislansky of myCUmortgage said one of the challenges credit unions still face is a large number of people who do not know CUs do mortgages.
"There is an awareness gap, so anything that can be done to build awareness about the mortgage is important," he said.
One barrier to raising awareness: CUs cannot market mortgages in the same manner as a car loan — with specials. Mislansky pointed out loan rates are controlled by the market.
"Credit unions have to consistently pound the drum so members come to them when they are ready to buy a home. I am a big fan of housing nonprofits, local community groups that help people become homeowners through down payment assistance or counseling. One national example is NeighborWorks America."
According to Mislansky, credit unions should be looking at the value they can bring to a real estate agent: hitting deadlines, providing continuing education and personal service. He pointed out some CUs have had great success with educational seminars, but others have not had success with these endeavors.
"There is no magic bullet, but community education does have the opportunity to work. There also is a good opportunity for credit unions to participate in HARP, which expires at the end of 2015," Mislansky said. "With rates having dipped below 4% some folks might be able to take advantage of the program. We are reaching out to folks we think qualify. This will help members and save them money each month."
Mislansky said the United States Supreme Court recently sided with the Department of Labor that mortgage originators are eligible for overtime in some circumstances. He advised CUs to review their compensation policies to make sure they comply with DOL standards.
Talent Needed
Domondon of Meriwest Mortgage said an overlooked challenge this year will be finding talent. CU lenders need productive and experienced mortgage loan officers. The problem: for the ones who are successful it is difficult to budge them from their current place of employment.
"But if they are unhappy for any reason they might consider moving," she said. "We are growing our loan consultants organically by training, but that takes a lot of time. We look for people with drive and passion who are able to self-motivate, because it is tough to go out there and sell yourself."
Some CUs are starting to recognize the importance of the secondary market, according to Domondon. As this change takes place, she said they no longer have to hold the loans they make on their portfolios, which helps with interest-rate risk and real estate-concentration risk.
"So we can be as successful as we want to be, and not be limited," she said. "The agencies and private equity firms do not compete with us for member relationships, which is important."
Domondon said the industry will be watching the Fed closely for any increase in interest rates, "which would make things even more difficult." She expects the first rate increase will be in September, not June, as "There is room for inflation, and there is a lot of global uncertainty."
Abbink of CU Members Mortgage in Dallas noted for three straight years people have been predicting interest rates were going to go up, but 2015 started with rates lower than a year earlier.
"We do not know what significant world events will take place over the next year, but certainly there is not a lot of room for rates to go down so it makes sense to predict rates will go up," he said. "Investors have cooled off their purchases of properties, which has stabilized the market and brings in true owner-occupants. Prices are not going up as quickly as before because these investors were making cash offers and sparking bidding wars. In 2015 most estimates are for 3% to 5% appreciation."
