One key performance difference between large and small credit unions is the ability to generate income per member. Most credit unions have similar costs per member, regardless of size, but larger credit unions more effectively reap economies of scale that lead to higher revenue per member. CUSOs can give smaller credit unions the efficiencies and collective power that enable them to serve their members well, no matter their size.
Case Study: myCUmortgage
myCUmortgage is an example of a cooperative strategy that credit unions up to $200 million in assets are using to establish a footing in the mortgage market. As a wholly owned credit union service organization (CUSO) of Wright-Patt Credit Union ($ 1.1 billion in Fairborn,OH), myCUmortgage offers mortgage loans to its Wright-Patt members and also collaborates with 42 credit unions, mainly in Ohio, to enable them to offer mortgage loans as well. In creating the CUSO, Wright-Patt hoped to enable credit unions to initiate or expand their mortgage portfolios, generate fee income, and create a recurring stream of revenue in mortgage servicing rights. The alliance of credit unions creates a larger pool of loans, which helps to reduce variable loan costs and spread fixed costs over a larger pool loan pool.
The Business Model
In most credit unions, a mortgage manager processes all loan applications and closings. With the cooperative strategy, credit unions focus on their core competency---talking to their members--- and myCUmortgage focuses on its core competency--- back office mortgage processing. The CUSO trains its credit union partners in mortgage products and origination, and then it provides loan processing, underwriting and closing functions for loans originated by the partners. myCUmortgage works with several business partners, namely Prime Alliance, Fannie Mae, Midwest Loan Service and CU Realty Services. Specifically, Prime Alliance provides technology services that allows for Internet mortgage applications and the creation of custom mortgage websites for credit union partners. Fannie Mae is a source of financing for home mortgages, while Midwest Loan Service is a servicing partner and CU Realty Services provides realty referrals. myCUmortgage’s business model shows that there is value in working with others and focusing on what each partner does well.
Since implementing the cooperative strategy, many participating credit unions have reaped rewards. For example:
- Dynamic Federal Credit Union ($10 million in Celina, OH) has funded nearly $2 million of assets in the last 12 months.
- Canton School Employees Credit Union ($76 million in Canton, OH) experienced a 101% twelve-month growth in mortgages outstanding.
- Middletown Hospital Credit Union ($5 million in Middletown, OH) averaged $1 million in funding per year.
Through this alliance, small credit unions are able to offer mortgages to their members without the usual costs and challenges of mortgage lending. Though competition can pit credit unions against each other in some areas, myCUmortgage highlights the benefits of collaboration. The CUSO’s strategy allows smaller credit unions to capitalize on their strengths and succeed in satisfying members’ financial needs without a learning curve or the infrastructure expense of a larger credit union. Size is not an obstacle to success when credit unions share the will to collaborate.
To read find out more about CUSOs like myCUmortgage, order your copy of the 2006 Directory of Credit Union Service Organizations. Along with key contact information for all multi- and wholly- credit union owned CUSOs in over 30 service categories, it also includes updated information on every CUSO's financial, ownership and customer metrics in this year's just launched CUSO Guide Online. Online access is free with your purchase of the publication.