How does your credit union price its home equity line of credit (HELOC) portfolio?
Some credit unions are offering introductory teaser rates to entice members
to begin a line of credit while other credit unions are following simple pricing
Callahan & Associates recently interviewed lending executives at credit
unions with robust HELOC programs ranked among the top 100 in the industry.
Many meet to discuss loan product pricing as well as risk management scenarios
on a regular basis. "Our ALM committee looks at our pricing models every
two weeks," said Diane Zbilski, mortgage sales manager at DuPage Credit
Union in Naperville, IL with $210 million in assets. "They do an analysis
of the competitors in the area as well as our own pricing."
Credit unions have experimented with several pricing models to encourage members
to open and draw on their lines of credit. A popular feature among financial
institutions today is to offer a teaser rate for an introductory period of three
to six months. However, many credit unions are shying away from the teaser rate
because it may send the wrong message to the member. "As a credit union
it does not return much value to the member," commented Tom Gray, senior
vice president of lending at Workers Credit Union Fitchburg, MA with $476 million
in assets. "If a credit union offers a teaser rate, members will go elsewhere
when the prime rate increases."
Aaron Bresko, director of credit and portfolio management at Boeing Employees
Credit Union in Seattle, WA with $4.9 billion in assets agrees. "Offering
a teaser rate will bring the credit union several short-term members. Our rates
are below market and we compete on more than price alone."
However, there are credit unions with successful open-end home equity line
of credit portfolios that do offer teaser rates. Bethpage Credit Union in Long
Island, NY with $1.9 billion in assets is one of them, and it grew its HELOC
portfolio 37 percent last year. "We give everyone our A rate [currently
prime minus 51bps] for the first six months, but most people interested in a
line of credit typically qualify for our A or B ratings," said Brian Clarke,
chief financial officer.
Wescom Credit Union in Pasadena, CA with $2.8 billion in assets has a similar
approach. "We offer a six-month introductory rate as a benefit to our members,"
said Peter McNulty, senior vice president of lending. "Since many HELOCs
are drawn down in the early months of the line, members can repay at a relatively
low rate during the first six billing cycles."
Home equity lines of credit are a popular product today with 52% of bank executives
reporting it as their top growth product in 2005 according to a recent American
Banker Survey. Their popularity is seen as credit unions as well, as home equity
lines of credit are now 19.8% of the real estate loan portfolio, up 29.7% from
last year. In an increasingly competitive market, credit unions need to have
a clear pricing strategy for their product.
Learn more about HELOCs through our webcast, Lending
Success Stories: Helping Members Unlock their HELOC's Potential.