Credit unions that have tailored mortgages to niche homeowner markets have found the efforts spent developing specialty products can pay off.
More cooperatives are offering a wider range of mortgage products, from hybrid ARM-fixed products to “green” mortgages, to take advantage of specific demands in their markets. Credit union real estate loan growth has slowed in recent years. After double digit growth in early 2008, real estate loans increased just 0.21% in March 2011 from March 2010 levels according to Callahan & Associates’ data. (The sharp decline was due to significantly higher sales to the secondary market. If these loans had been kept on the books, loan growth would have exceeded 7% in 2010.) Niche mortgage products have been one tool helping counter a competitive mortgage market, executives say.
In Dayton, Ohio, Wright-Patt Credit Union recently created a mortgage product in response to low interest rate trends there by targeting a demographic of older borrowers who had not taken advantage of the lower rates. When mortgage rates reached a record-low of 4.17 percent in November, Wright-Patt Senior Vice President Tim Mislansky said he “was intrigued” by the borrowers who did not refinance and take advantage of those rates. The credit union found that 40,000 member households with homeowners over age 50 and credit scores over 660 did not have a first or second mortgage with Wright-Pratt.
So, Wright-Patt developed a product called “Retire Your Mortgage” that targeted those homeowners who only had one mortgage by touting the benefits of paying off your mortgage early. The Retire Your Mortgage product, launched on March 8, offers two loan options – a 10-year fixed 3.5% rate loan or a 5/5 ARM, also 10-year. So far, more than 80 applicants have applied for $7 million, and Wright-Patt has closed about half of those, with the other half still in the pipeline, Mislansky says.
“We knew there was a market out there for this,” Mislansky says. “When we saw the numbers (40,000 potential borrowers), we thought, ‘Well, how can we do this?’”
Wright-Patt members with a mortgage product usually invest in at least two other products, such as a savings account or another loan, Mislansky says. With that wallet share, and the interest earned on the mortgage product, the Retire Your Mortgage product has been a worthwhile investment, he said.
State Employees Credit Union in North Carolinahas also been fine-tuning mortgage products to shore up niche markets. After ten years of developing its ARM mortgage product, State Employees landed on a two-year ARM that starts at 3.75 percent and is capped at 9.75 percent. The cooperative had tried a 1-year, 3-year and 5-year adjustable rate mortgage products but members complained that too much risk was being transferred to the consumer, says Phil Greer, senior vice president of mortgage lending.
Now, State Employees Credit Union has roughly $10.5 billion in mortgage loans, about 90 percent of which are its two-year ARM products, Greer says.
“It’s a matter of identifying a need and filling a need where it makes sense,” Greer says. “We’ve taken the two-year where we’ve seen the need and incorporated more features. It’s worked out quite well for us. Our members have been quite receptive to it. They’ve overwhelmingly accepted this product.”
State Employees also offers a “green mortgage” that’s a version of the two-year ARM but has slightly higher monthly payments. It anticipates that consumers with energy star product will have lower utility bills and be able to afford higher monthly payments. And State Employees' SECURE Mortgage allows borrowers to take up to $5,000 of the mortgage to serve as a cushion for unexpected costs like replacing the heating system.
“Your product needs to be a product you are willing and able to hold in your portfolio,” Greer says. “Add a whistle here, a bell there depending on needs you hear from members.”
Credit unions may also see an opportunity in the market for reverse mortgages, which has been growing since larger players like Wells Fargo have stopped offering reverse mortgages. As housing prices have declined in recent years, reverse mortgage products have become more risky as financial institutions cannot depend on homeowners keeping their full equity.