VP of Mortgage Lending,
Scott Credit Union
Shorter term fixed rate mortgages have helped Scott Credit Union ($875.8 million, Collinsville, IL) grow its loan portfolio during a low interest rate environment, when members are reluctant to sign onto adjustable rate mortgages and credit unions are reluctant to take on long-term fixed rate loans.
Two years ago, the credit union, based in the St. Louis metropolitan area, offered five-year and seven-year fixed rate mortgages in response to members’ requests. In the second quarter of 2012, Scott Credit Union welcomed 6.1% year-over-year growth in its real estate loan portfolio, which increased to $79.8 million, according to Callahan & Associates’ Peer-to-Peer data. That growth was driven by its fixed-rate first mortgage loans, which increased 23.4% from the year prior.
During an interview at the American Credit Union Mortgage Association conference last week, vice president of mortgage lending Marna Asbury shed some insight on how the credit union established the mortgage specials and how it plans to continue tailoring the terms to meet members’ needs.
What exactly are you doing to achieve growth in your mortgage portfolio?
Marna Asbury: Scott Credit Union elected to provide a retirement-type loan. It was a specific, shorter term with a lower interest rate and flat closing costs to provide them the opportunity to retire their debt. Some of them are coming out of the airforce base and retiring. We have individuals in a certain age group and we met their needs. That has provided us the opportunity to grow our inside fixed rate portfolio – because the loans are shorter term.
We put the mortgage product out there and then they let us know what they wanted, which helped us adjust our offering. We run these loans as a special for two months, telling members that during these two months they can get this shorter term. Every six months, we review whether we’re going to do another special and under what terms, based on member feedback. That something that’s designed by myself and our chief lending officer.
How did you identify the need for different term lengths?
MA: We actually had members requesting the shorter term. “I want a five-year. I want a seven-year. Do you have that? Can you do that?” And when you’re dealing with investors, that’s really not out there as an option. So that’s something that we were looking at. Can we provide this to this member demographic and get that information to where we can use it and provide that to our members in a way that they can use it?
We ran one of the programs last year – one five-year fixed, one seven-year fixed for members to retire that debt. This year, we elected to grow our portfolio a little bit and expand it out to 10- and 15-year options. For some individuals, they know their kids would be in college at a certain time, so it was expanded to that demographic.
What were the challenges to reducing mortgages to a shorter timeline?
MA: It took off faster than we thought, so we had to bring in some temporary help. This was growth in addition to the existing refinance boom that’s going on right now with the low interest rates. But the biggest challenge we faced was keeping a fixed closing cost because with our competition, you can get the rate wars going. We wanted to focus on what can we do to help members get where they want to go. So we kept closing costs fixed and worked with vendors to get a specific product that keeps costs down.
We sent out marketing to our existing members and found they were taking the letters to their neighbors, their family, and their co-workers. It really generated a lot more word-of-mouth than we'd expected.
What is the housing market like in your area?
MA: We’re in the metro area east of St. Louis in southern Illinois. The housing market bubble wasn’t as big here and we never had the huge increase in prices. We still have a very high unemployment rate, so we’re still dealing with a lot that fallout. But we’re close to the Air Force base and we do have those military personnel come in.
Our underwriting has been extremely conservative, so we have not seen the huge amount of foreclosures. You’re always going to have those individuals who have lost their job or have something that’s happened, but we’re very proactive in seeing what we can do for them. We do make those outreach calls. Can we make a modification? Can we do something to work with them before we go to foreclosure? So, our percentage of foreclosures has been relatively low.
What is your strategy for your mortgage portfolio moving forward?
MA: We actually have a large portfolio of adjustable rate loans, but at the moment fixed rates are so competitive. People really aren’t trying to get adjustable rate loans.
We’re going to review our shorter-term, fixed-rate offerings periodically to see if it’s been tapped out or if we can do something else. There is going to be a limit as to how far we’re going to go out as far as the mortgage term is concerned. You always have those margins you have to look at. We’re going to be careful with that because we don’t want to hurt our member base.
Our advice is to listen to what members are saying. We have a situation where members are asking for this product. Look at your own loan portfolio and how you can grow and figure out what product you’re going to need to do to get it there. Do you have a product that fits that or can you make one up?