This week I learned about two spectacular examples of how the cooperative model provides a way forward in America’s search for the right economic stimulus. Washington is polarized at two extremes: the government can either spend more or cut taxes (and its role). Compromise seems remote. Realistically, the practical effect of either approach is months, if not longer, into the future.
Why haven’t the lowest interest rates in the modern economy led to faster growth? Why hasn’t the dry timber of trillions of dollars of cash on corporate balance sheets and in un-loaned bank funds been used to fire up the economy?
The problem is not a supply of resources; it's a lack of demand. That is why these two examples of credit unions stimulating their local economics are so critical. Both institutions are proactively helping members learn about the low rates, giving them the opportunity to refinance and save on interest payments. That savings goes immediately into the pockets of members, who then spend that money on groceries, gas, postponed visits to the doctor, delayed auto repair, or overdue home improvements. Demand is the spur to economic growth.
Educators Credit Union ($1.3B, Racine WI)
Educators Credit Union is having a terrific year with 9% share growth in a market still facing 10% unemployment. But the critical driver of its success has been a goal of saving its 97,400 members $10 million in annual interest payments through refinancing loans by year end.
Currently, the credit union has saved its members more than $7.5 million. In addition to helping members lower their loan payments, the credit union is helping its local economy. Members reinvest their savings in local retail businesses, thus multiplying their economic impact.
“A lot of people don’t realize what their current loan interest rates are and are paying too much,” says Shannon Huot, marketing manager at Educators. The credit union has had a series of campaigns, first with autos, then mortgages, and finally all business lines. The campaigns simply ask members to come in and learn how much they can save on outstanding loan balances.
Wright-Patt Credit Union ($1.9B, Dayton, Ohio)
In August, Wright-Patt Credit Union closed $103 million in first mortgages, of which 80% were refinancings that reduced member payments through lower rates or shortened terms to help members pay off total debt sooner. More than 800 households were able to reset their mortgage obligations and take advantage of the lowest rates ever for conforming home loans.
Most of Wright-Patt's 193,900 members live paycheck to paycheck, according to Tim Mislansky, senior vice president. This monthly savings of more than $100 per member gives them cash they didn’t know they had. In many cases, it is like getting a salary increase without the taxes.
But August was just the beginning. Today, the credit union has more than $600 million in its CUSO mortgage pipeline from more than 5,000 households. The majority are refinances. Those savings go right back into the economy, multiplying the initial effect time and again.
Wright-Patt has become the No. 1 mortgage lender in its market area, and in the process created future revenue streams, expanded member relationships, and converted investments earning 0.25% overnight to higher yielding, quality loan assets. It’s a win, win, win for members, the credit union, and the greater Dayton area.
What These Efforts Mean for Members, Credit Unions, and the Local Communities
Across the country there are reports of record and near-record refinancing volumes. One major national mortgage CUSO reports volume up 62% over July and August. A large Illinois credit union says its pipeline is full with modifications and refis equal to the peak periods in 2009 — and closings extend through the end of October. Its challenge is finding enough people to handle the volume.
Corporate America has refinanced and issued new debt at a record pace in 2010. This has occurred across the spectrum of corporate credit ratings. Those interest savings have gone to those firms’ bottom lines and accumulated in trillions of dollars sitting on their balance sheets.
Now credit union members across America are getting the same opportunity. Most importantly, their savings help fuel local economic activity. Local savers deposit their funds into their credit unions, seeding the recovery household by household and community by community. No tax cuts, no government spending. Just local funds being reinvested in the member’s well-being.
This unique credit union initiative arises out of their core purpose of doing the right thing for the member. That is the reason America has cooperatives, to provide a member-owned option for financial services that will be available to members and will act on their behalf in good times and bad. This countercyclical role is why credit unions exist and why Congress gave them a tax exemption.
But as credit unions make these services available to their members, the competition is waking up. When members call other financial institutions for payoff balances, the note holders in some cases are countering and matching the credit union’s rate. That is as it should be. That is what a competitive market place is meant to do.
Once all this dry timber of idle cash is used to help consumers refinance a portion of their almost $12 trillion in real estate and consumer debts, who knows where it will end up? Undoubtedly in an economic recovery that picks up pace month by month bringing jobs and confidence region by region, state by state, and then across the country. Why can we be so confident? Because that is what credit unions have always done. The little fires of progress being sparked across the country by credit unions will soon help everyone see a growing economic light.