Through the first three quarters of 2011 The Golden 1 Credit Union in Sacramento, Calif. had by far the most mortgage originations of any CU in California and it is actively advertising for more.
Donna Bland, president and CEO of the $7.5-billion credit union, said while some CUs might shy away from real estate lending with the memories of the housing crash still fresh in their minds, her philosophy is financial institutions "are in the business of risk, and credit unions are in the business of providing our members with loans."
"There are a lot of consumers out there who are looking to refinance their first mortgages, but there is not a lot of equity," she assessed. "There are some purchase mortgages, but they are a small percentage of our new applications. Therefore, we are always in the business of providing mortgages and we have to manage our risk."
Bland said The Golden 1 underwrites to Fannie Mae standards with the goal of selling most of its mortgages on the secondary market.
Today's interest rates are so low Golden 1 is continuing to experience a "refi boom," Bland said. To ensure consumers keep the CU at top of mind, it has an ongoing advertising campaign stressing the fact Golden 1 provides mortgages.
Approximately 30% of homes in California are underwater, but Bland said that means there still are many that have some equity, and the owners are not looking to move. She said several years ago Golden 1 instituted a policy that mortgages need to be 80% LTV, which helped it avoid trouble during the housing meltdown.
"We have always complied with Fannie Mae standards," she declared. "We did not offer exotic mortgage products, we had no pick-a-payment loans. Recently, we started offering FHA loans, which includes a guarantee."
Although the credit quality of potential borrowers largely is good, Bland said many applications cannot be funded simply due to low appraisals on the property. The good news: Fannie Mae allows some higher risk loans, where the LTV can be higher than 80% under certain circumstances, or the debt-to-income ratio can be higher. In such cases, Golden 1 sells those loans rather than keeping them in portfolio.
One change from years past: Golden 1 still verifies the borrower's income in the approval process, but now it reverifies income and employment just prior to funding.
"The market is so busy the process can take 60 days, so we check a second time," Bland noted.
Managing Risk
The key lesson every lender should have learned from the last real estate boom, Bland said, is prices do not always go up.
"And we take that into consideration in our underwriting. That is why we require 80% loan to value now. There are more rules for appraisers these days, and we make sure we know our appraisers well.
"The key is to manage risk," she continued. "We monitor interest rate risk to make sure we stay within certain parameters. We will write loans on foreclosed or distressed properties as long as they meet our underwriting standards. When we are making the loan it is not distressed."
Last summer, Golden 1 implemented a Web-based mortgage system that lowered the time for approval to just 20 minutes. Bland said this initiative increased efficiencies and helped to separate those members who are serious about obtaining a mortgage and those who are not.
