The mortgage industry is having an eclipse of its own this year. 'Mortgage Eclipses', never total in my memory, happen every two to four years, too. Everything must be aligned as well, although the factors change each and every time. Sure, there are some constants. It usually starts with an over-anxious Federal Reserve that decides slowing the markets down is necessary to stave off inflation. The Fed managed to do that and more; it appears as if, absent an ease in monetary policy, the US and World economies could be heading for a recession. This time around the trigger-happy Fed was joined by investor greed and mortgage broker misdeeds.
Broker misdeeds? You bet. During the peak of subprime lending goofiness, borrowers, many of them credit union members, financed through mortgage brokers for no other reason than brokers are darn good sales people. They don't offer lower rates or more competitive fees or safer products -- they just happened to be there. Maybe they were introduced by a real estate agent. Now they're gone because their funding sources disappeared. Brokers get only get paid when loans close, so they are highly motivated to get people into homes. They have no incentive whatsoever to keep them there.
And investors? They provided the money brokers needed to close loans. Investors world-wide funded loans with total regard for yield and little regard for risk. Remember Finance 101? The higher the reward, the higher the risk. When questioned about this during the height of sub-prime foolishness, the standard investor response was they have models, analytics and Ph.D.s behind their strategies. In essence, they believed they were smarter than the markets. Another lesson, probably from Finance 201: no one is smarter than the market, ever. It's extreme hubris to think and act otherwise.
The tragedy in all of this? Shuttered mortgage brokers equal shattered housing dreams. Borrowers - - members - - are looking for trustworthy lenders. Credit unions are the most trustworthy lender in the industry. Conditions have to be right for a lunar eclipse and a mortgage eclipse. Present market conditions, however, are also bountiful with opportunity for credit union mortgage lenders. Here's how Prime Alliance sees it:
This is a purchase boom; credit unions close loans reliably and more quickly than every other lender. Mortgage lending can be a negative industry. When rates rise, we typically talk about the refinance-bust. In this market, we actually have mini-purchase booms. Rates remain low, very low, by historical standards. People are buying homes. With credit tighter now than it was just three months ago, those borrowers are looking for reliable lenders. What are we waiting for? Credit unions have funds to lend, excellent relationships with Fannie Mae and Freddie Mac, and outstanding reputations as lenders.
What do we do? Take every opportunity - newsletters, statements, ATM messages, on-hold messages, billboards, bus advertising, local radio talk shows, opinion pieces in the local press - - to tell members and your community your credit union is unaffected by the subprime wackiness and is ready to lend. Let's go make some purchase-money loans; no other lender can eclipse us.
Conventional Lending is sexy; credit unions are outstanding conventional lenders. Wow, what a change. Not twelve months ago, 30-year fixed mortgages and conventional ARMs were as dowdy as your old Aunt Mabel. Now they're all the rage. Members understand them. Members know these products aren't going to squeeze their budgets due to interest rate resets or extra-special features like pre-payment penalties.
What do we do? Advertise the fact your credit union is the local lender who will help get you in a home and keep you there. Credit unions stayed away from the goofy, stupid, inane lending practices of our fallen brethren. Let's celebrate that fact loudly with every member who will listen.
Real Estate Agents are looking for lenders that can close loans; credit unions close loans on time. Mortgage brokers have been the darlings of the real estate community since dinosaurs roamed the earth. Credit unions, on the other hand, have been the lending community's red-headed, freckled step-child. Until now. Mortgage brokers are disappearing; without money of their own to fund loans, and with their funding sources gone, they're breaking commitments, leaving buyers and their agents in the lurch. A Realtor friend recently told the Prime Alliance Team about comments made by the head of her firm at a recent meeting, "Credit unions are rock-solid, they close loans on time, go to the credit union." We couldn't get a date during high school; now we're the belle of the ball. In all seriousness, what are we waiting for?
Interestingly enough, some of the mortgage brokers that are still in business are turning to credit unions as well. One of our team members who comes from the brokerage industry has friends in the business. One of them had 14 lending commitments dry up this week. He went calling on a credit union for financing.
What do we do? Hug your local Realtors, Builders, and Brokers. Credit unions have been waiting for a ticket to their dances for three decades. Now is not the time to be shy -- go make friends. Then go make loans. Once this group of very influential people get to know your credit union and its capabilities, they'll be an outstanding and regular referral source.
If you've been hanging around the mortgage universe for more than a few trips around the cosmos, you know our eclipses come and go. This one presents lasting opportunity, opportunity to show members, Realtors, mortgage brokers and builders our lending prowess. We do this right, we'll make it to 10% market share. Anyone who says otherwise is just howling at the moon.