On January 9, 2009, long-term mortgage rates fell below 5% for the first time in recent history. The market took advantage and homeowners flocked to financial institutions to refinance their mortgages and reduce their monthly payments. The week was an indication of the record refi year to come and of the coming refinance boom. Now, March 2014 data from the Mortgage Bankers Association shows applications for refinancings are down nine percentage points from five months ago and account for 56.5% of all mortgages.
“With the refi business taking a step back, every business would be prudent to start taking a look at expanding on their purchase money market,” says Tisha Hartman, director of real estate lending at KeyPoint Credit Union ($865.9M, Santa Clara, CA), whose refinancings account for approximately 72% of its mortgage portfolio.
CU QUICK FACTS
KEYPOINT CREDIT UNION
data as of 12.21.13
HQ: Santa Clara, CA
12-MO SHARE GROWTH: 4.67%
12-MO LOAN GROWTH: 23.17%
According to Coldwell Banker’s Home Listing Report, five out of the top 10 most expensive real estate markets in the United States are located in and around KeyPoint’s San Francisco Bay-area headquarters, and KeyPoint is still flush with jumbo mortgages in need of refinancing. Jumbos loans exceed the loan limits set by the Office of Federal Housing Enterprise Oversight, meaning Fannie Mae and Freddie Mac will not purchase them, so lenders usually charge higher interest rates and approve lower loan-to-value ratios for refinances. When home values decrease, as many did during the housing crisis, consumers holding a jumbo loan can have troubles meeting the LTV criteria and must put off refinancing until property values start to increase, as they did in 2012 and 2013.
Although KeyPoint’s refinance business has yet to slow, leadership is aware of the changing market and it is preparing for the shift to a purchase market in 2014. But like credit unions across the country, KeyPoint is faced with one key question: As refinance opportunities taper out, how do we transition to a pragmatic purchase mortgage market?
Here are three tips to make the shift.
1. Consistently Deliver High-Quality Service
For consumers, the pressure to process a purchase mortgage and close on a home is on.
“There’s a certain type of urgency in the purchase world that many refinance lenders are not accustomed to,” Hartman says. “There are a lot of moving parts that need to be managed, and a lender that cannot successfully do th
st, no matter how strong their products are and how strong their rates are, is going to fail.”
Credit union lending departments need to be ready to turn on a dime to service mortgages in highly competitive housing markets. A reputation as slow, even if steady, can squash opportunities to lend.
2. Partner Analytics With Grassroots Relational Data To Understand The Market
It’s important to understand what homebuyers are purchasing, what realtors are leveraging for financing, and what needs the all-around market has. To do that, get out into the community and build relationships with agents.
“My business strategy is to work with fewer people but go deeper in those relationships,” says Faye Nabhani, chief lending officer at KeyPoint. “It allows you to maintain a higher level of control and accountability throughout the process for both parties.”
Partner those grass-root, deep connections with market analytics to confirm trends heard from sources.
“Do a sanity check,” Nabhani says. “You’re hearing all of this data from your resources and your relationships, but you also need to be watching industry trends in your area.”
3. Meet The Credit Union Credo: Take On Risk To Help Members
According to Hartman and Nabhani, there is an opportunity for credit unions to make a meaningful difference to members by creating mortgage products that banks and other financial institutions won’t touch because they are unwilling to take on the risk. But remember, as the credit union takes on more risk, it must also set limits and understand risk allowances for higher loan-to-value offerings.
“Inevitably, losses will happen when you step out of the typical box,” Hartman says. “Price that riskier business to the point where it makes sense when the credit union incurs losses.”