When it comes to industries that are alert, responsive, and adaptive to change, the mortgage business does not typically make the top of the list. But as Workers’ Credit Union ($978.8M, Fitchburg, MA) demonstrates, that doesn’t have to be the case. According to Callahan & Associates’ Peer-to-Peer analytics, fixed and adjustable rate first mortgages at Workers’ were up annually 10.6% and 18.2%, respectively, as of 2Q 2013. A big part of this success lies in the investments Workers’ initiated years ago, in the middle of the darkest throes of the economic downturn.
“Prior to the recession, we only offered the standard real estate loans that everyone else did and we weren’t that competitive,” says Tom Gray, senior vice president of lending. “But when the purchase market went away, we finally made it a point to be more counterintuitive.”
The credit union hired additional employees with origination experience and expanded its product base with USDA, FHA, and VA products as well as other options that were not available in that marketplace.
“We learned you have to have the right product mix, pricing, and people if you want to be able to play in any environment,” Gray says.
Now, as competing businesses reduce locations or close altogether — a trend demonstrated by the 2013 closure of the largest bank-owned mortgage company in the state of Massachusetts — Workers’ proactive positioning is allowing it to scoop up available market share. The credit union’s real estate penetration rate is nearly 13%, significantly higher than the 4.5% average for cooperatives between $500 million and $1 billion in assets. And Workers’ predicts even more growth in its future.
“For every town we have a branch in or that touches a branch we have a town in, we want to be No. 1 in terms of market share for mortgage lending,” Gray says. “We’re already there in several of these markets, but we want to be there in all of them.”
Efficiency, Without Sacrificing Effectiveness
Although the credit union has a wealth of electronic resources at its disposal today, including the ability for members to apply for mortgage loans online, people are still the main ingredient in its success.
Workers’ current mortgage team includes one individual who can originate first mortgages at each of the credit union’s 14 branches, eight additional originators — including six roaming individuals with different territories who drum up purchase business with brokers — and a dozen employees who close, underwrite, and book the loans.
“We have all the remote technologies that a big institution needs to have, and people do use these resources,” Gray says. “But buying a home is a big life decision, so the vast majority of borrowers also want to talk to somebody during that process. You have to have options and efficient ways for them to do that, so we’ve been hiring non-stop.”
With a 64.75% efficiency ratio, compared to a peer average of 81.39%, Workers’ is living proof that adding key employees can drive efficiency rather than negate it. For example, two of the credit union’s dedicated originators work in the call center and handle all first mortgage applications that come in via telephone or online. Incredibly, this team drives a full 25% of the mortgage business that comes to Workers’.
Many of the talented individuals Workers’ has hired might not have considered working for a credit union five years ago, when there was a wealth of opportunities out there. Now, though, the consolidations and closures of Workers’ competitors has made the credit union one of the most attractive options for those with a sales mindset.
“The refi boom helped our existing employees gain a lot of valuable mortgage experience,” Gray says. “Some of that expertise has carried over to the purchase business as well.”
This is important because approximately 40% of real estate activity at Workers’ today is in purchases versus just 10% a year ago, and the purchase dollar amounts are much higher than in years past, according to Gray.
A Different Take On Jumbo
Many credit unions are waiting to see how possible changes in conforming loan limits might alter their mortgage portfolio and secondary market strategies in 2014. Workers’ is also awaiting a decision on these issues, but it has slightly minimized its exposure by getting a head start in the non-conforming and jumbo loan business.
“We’ve always offered a 5/1 or 7/1 ARM product up to a max of $1 million,” Gray says. “Since we don’t sell these to Fannie or Freddie, jumbo limits never really mattered much to us in that regard.”
In October 2013, the credit union also began offering a fixed-rate jumbo product with 15-, 20-, and 30-year terms at the same pricing as its conforming fixed-rate loans.
“After looking at this with our ALCO committee and our CFO, we figured out it was something we could afford to do,” Gray says. “We’re starting to see good business come from that product already.”
Although Workers’ current footprint does not contain a heavy jumbo market, its ongoing expansion is bringing it closer to the Boston area, so it makes sense to make high dollar loans a bigger part of the business model sooner rather than later. In the months and years ahead, Workers’ will closely monitor this area of the portfolio to make sure the credit union does not take on too much interest rate risk. And if the need arises, the credit union has several options such as borrowing money to fund the loans or — as a means of last resort — selling them to the private secondary jumbo market, which has rebounded somewhat in the post-recession.
An Accelerated Option
Other real estate loans are down approximately 5% this year; however, Workers’ Finish Line loan — a 7- or 12-year fixed rate accelerated mortgage the credit union processes and underwrites as a home equity loan rather than a traditional refi — is a bright spot in the portfolio. Workers’ unveiled Finish Line four years ago to help borrowers who had paid down a significant portion of their mortgage and were looking to pay off the rest of the loan before retirement.
“These tend to be $75,000 to $80,000 loans on average with around 40% LTV or less,” Gray says. “They’re a super deal for the credit union.”
Booking the loans as HELOCs also comes with a number of advantages.
“HELOCs are less complicated, so there’s a much bigger group of employees who can process those versus employees who can originate a first mortgage,” Gray says. “We don’t have to use an attorney like we would a refi, we can close them in branches in a week instead of a month, and we don’t need to do a full title or appraisal search.”
Being the first to offer an accelerated mortgage product in its marketplace was a big differentiating factor for Workers’, and these loans still drive anywhere from $2-4 million in activity every month.
The credit union’s ongoing investment in product diversity also offers Workers’ employees additional tools with which to attract and retain borrowers.
“If a member comes in looking for the Finish Line Refi but decides the payment is too high, we have a 20- or 30-year fixed, or vice versa, so having all these different loans helps us meet our members’ different needs,” Gray says. “A year ago, we couldn’t have sold an ARM loan to anybody no matter the rate, but it’s an ever-changing marketplace, and that’s become a safe, successful product for us today.”