How Many Mortgage Products Are Enough?

Credit union executives are reporting that members are choosing adjustable rate mortgages over fixed rate products, even in today’s rising rate environment.


Even in today’s rising rate environment, several credit union executives are reporting that their membership is leaning more toward adjustable rate mortgages rather than a traditional 15 or 30-year fixed rate mortgage. 37% of mortgage originations for the mortgage industry, including refinancing and new purchases are projected to have adjustable rates for the first quarter of 2005 according to the Mortgage Bankers Association.

“With interest rates moving upward, we find that member demands flow into adjustable rates because of the lower monthly payments and the ability for them to qualify for a more expensive house,” said Phil Greer, senior vice president of lending at State Employees Credit Union in Raleigh, North Carolina with $12.1 billion in assets.

With a booming real estate market in several parts of the country, many members are becoming more financially savvy and are learning about the various first mortgage products available to them. Several credit unions are offering non-traditional first mortgage products that include:

  • Adjustable rate mortgages
  • Hybrid mortgages
  • Interest-only mortgages
  • Balloon mortgages
  • 40-year mortgages

With the variety of mortgages options available, credit unions should consider the number of mortgage products they should offer.

How Many Mortgage Products to Offer

There are two schools of thought for how many first mortgages products to offer. Some credit unions like to offer a limited number and focus on those products, while others offer the full gambit of products to address various member needs and differentiate themselves from the competition.

  • Limited offering: Several credit union executives stated that their loan staff could better address member needs and sell the products with fewer offerings. “We are pretty plain vanilla when it comes to our mortgage offerings,” said Brenda Williams, a real estate lending supervisor at Long Beach Firemen’s Credit Union in California with $127 million in assets. Long Beach Firemen’s CU is ranked forty-second in the country for adjustable rate mortgages loans originated in 2004 and only offers a 25-year ARM that adjusts every six months and a 15-year fixed rate mortgage. Phil Greer agrees. “I have never seen the benefit of offering 20 to 30 mortgage products. There are a lot of administrative costs to keep them up-to-date from a regulatory standpoint and to maintain their pricing on a daily basis.”
  • Multiple offerings: Other credit unions have a diverse member base and offer several mortgage products to better fit their needs. “There are different mortgage products for each type of member,” said Herb Behrens, director of mortgage lending at BCU in Vernon Hills, IL with $970 million in assets. “Our membership operates on a variety of professional timelines, which will affect how long they stay in their house.”



April 25, 2005



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