Mortgage Models And Expectations

How does the relative size of your mortgage lending program influence the way your credit union does business? These peer comparisons might help as you develop your mortgage strategy.


The housing bubble and subsequent housing crisis has prompted many credit unions to reevaluate their mortgage lending strategy.  Credit unions have encountered a mixed bag of experiences during the past recession, from higher mortgage market share to growing loan losses. The following data and questions may help your credit union define its mortgage goals, measure the impact of mortgage lending on your credit union’s performance, and review your plan for 2010.

How to approach this data:

  1. Look into which category your credit union falls.
  2. Determine if mortgage lending has had a similar impact on your business model compared to your mortgage lending peers.
  3. Review your current business needs, and measure how your mortgage lending model compares with others in helping you achieve those needs.
  4. Consider if expanding or contracting your mortgage program will help you achieve your goals for 2010.
  5. Reflect upon the questions at the bottom of this article their impact on your 2010 strategy.

There are several initial notes on the data below. First, an asset floor of $20 M was placed on each peer group to mitigate the impact of smaller credit unions on the Small Mortgage Program peer group.  Second, the real estate origination ratio is included to confirm the categorization of peer groups by outstanding portfolio; larger mortgage programs simultaneously keep larger real estate portfolio and originate a higher percentage of real estate loans.

Also, a clarification on term usage: in the table and analysis below, “small,” “medium,” and “large” refer to the size of the real estate portfolio relative to the entire loan portfolio, not absolute size of the portfolio.

Peer Group Comparison ChartSource: Callahan & Associates' Peer-to-Peer Software

As one may expect, mortgage lenders have experienced slower outstanding growth over the past year.  Sales on the secondary as a percentage of total mortgage originations are lower at credit unions with greater loan concentration in real estate loans.  This may seem surprising at first, but taking into account the greater concentration in real estate loans, the percentage of secondary sales to total loans is higher at credit unions with relatively large mortgage programs.

Increased mortgage lending tends to result in credit union employees producing greater income, both relative to the number of employees and salary.  This stands despite the fact that mortgage programs experience lower yields from their outstanding loan portfolio.  This discrepancy is at least partially accounted for by the size of the servicing portfolio relative to the entire loan portfolio (higher with bigger mortgage programs), and the greater number of accounts per member.

Mortgage lenders also appear to be more reactive to changes in the mortgage market on a relative scale. In managing interest rate risk, the growth of mortgage sales is significantly higher with larger mortgage lenders.  In managing credit risk, mortgage lenders are more likely to turn to alternative loss mitigation techniques such as modification.

Further regarding risk, while large mortgage programs experience higher overall delinquency than smaller ones, this appears to be unrelated to mortgage delinquency.  On the other hand, net charge-off rates and real estate net charge-off rate more strongly trend together, with medium-sized programs experiencing higher charge-offs.

Key Questions For Credit Union Mortgage Lenders

As your credit union examines the role of mortgage lending and its impact on your credit union’s business model, consider the following questions.  How do your answers to these questions affect your goals for your mortgage lending program over the next year?

  • Are realtors over- or underused in generating new mortgage business?
  • What connections in your community can your credit union leverage to grow mortgage lending?
  • Will your mortgage growth come from new or existing members?
  • Are you expecting growth from purchase mortgages or refinances?
  • To what extent will credit and interest rate risks impede growth?
  • How does members’ awareness of your mortgage lending program compare to your goals for your program?
  • Is your credit union just a source of credit, or does it provide information and guidance on the entire home buying process?
  • Did competitors leave your local real estate market?  If so, are they coming back?
  • Are your members first-time home buyers, experienced home buyers, or investors?

Next Step

This information will help frame your analysis of your current performance and guide your strategic orientation for the coming year. If your goal is to grow your mortgage program, reach out into the community, forge relationships with realtors, or build awareness of your credit unions mortgage offerings as needed. If your goal is manage your existing portfolio, it may be more advantageous to focus on cross-selling to members with mortgages and managing future risk. The tactical implications depend on how you answer each of these questions and apply the data above to your unique situation.