Last year, credit unions achieved a new high in first mortgage market share — 5.4% of total originations — while refinances reached 70% of total originations. Congratulations if your credit union helped members refinance homes. You helped members put extra money in their pockets or reduce the term of their loan and likely earned some solid income for your credit union.
Data as of December 31, 2010 for all U.S. Credit Unions
Source: Callahan’s Peer-to-Peer, MBA
Now for the bad news: According to industry projections by the Mortgage Bankers Association, total refinances are going to fall to 38% on all originations this year and to 24% in 2012. Here’s another way to look at it: At the peak of the refi boom, more than 85% of applications were for refinances. Now it’s less than two-thirds.
So, how do we prepare for these drastic declines
Credit unions need a purchase-money strategy, which means building relationships with entities that help in the home-buying experience. Here are four ways to implement a purchase-money strategy:
Offer Government Loans
Government loans are a good solution to help members establish low monthly payments. For instance, FHA loans are insured by the government, giving credit unions more flexibility in offering a better deal. It often results in low down payments, low closing costs, and easy credit qualifying. Home buyers who are interested in an FHA loan will need to use a qualified FHA lender. That lender can be you.
Hire Full-Time Originators
Our experience shows when credit unions have a mortgage originator committed to growing loans, mortgage lending grows. With a reasonable compensation structure for your originator and the right relationships in place with the real estate community, you’ll be able to insulate your credit union from the dramatic declines in loan originations.
Work with Realtors
Realtors are an important part of your community. You may even have Realtors as members. If so, reach out to them. As a member, they know you and trust you.Help them understand how you can help them close deals. To help foster the Realtor relationship, provide simple updates for rate sheets and their clients’ loan statuses. That’s the type of personalized treatment they expect from mortgage lenders. And, when it comes time to finalizing the sale, treat your Realtors as if they are a partner in closing the loan. You need them as much as they need you.
Provide Home Buyer Education
Home buying is exciting and intimidating all at once. The investment, paperwork, approvals, and inspections can be overwhelming. To help ease those worries, consider offering seminars on home buying to your members and non-members. Partner with a local nonprofit housing agency to present to an audience of buyers. And to secure the lending business, provide a special offer to anyone who attends the seminar. For instance, offer a discount on closing costs if they attend a seminar.
As with all product relationships, this will take time to develop. However, if you focus on laying the foundation this year, you’ll build a successful strategy to make mortgages a core product of your credit union; and not just when refinances are booming.