Several experts including Federal Reserve Chairman Alan Greenspan have indicated
that the next few quarters may exhibit lower levels of mortgage activity. In
anticipation of such a slowdown, financial institutions are beginning to reexamine
and develop internal processes to compete in this new lending landscape.
Many innovative credit unions have begun to implement online mortgage application
processes to reduce processing costs. According to Fannie Mae's Focus 2004 Survey,
financial institutions that offered a paperless application paid an average
of $1,498 in origination costs per closed loan versus $1,798 for those without
an automated underwriting system.
Those credit unions that have implemented an online mortgage application process
are enjoying several distinct advantages, including:
- Better member service: An online mortgage application allows the
credit union to reduce turnaround times and render faster mortgage decisions.
In a 2004 Callahan Survey Consortium survey, 72 percent of members received
approval of their online loans within 48 hours. Similarly, 62 percent of members
had their loan process completed within seven business days. Members expect
fast turnaround times and may go elsewhere if not satisfied.
- More loan applications: Online application programs allow credit
unions to receive loan application outside of their normal business hours.
Further, members have cited the ability to apply with anonymity as persuading
them to fill out the application online. A+ Federal Credit Union ($465 million
in assets, Austin, TX), for example, achieved a 50 percent increase in loan
applications in 2004 by implementing an online loan application program.
- More efficient processes: Implementing an online loan application
requires a credit union to review all aspects of the mortgage application
process. Credit unions generally enjoy more efficient processes and savings
- Higher likelihood of PFI status: The mortgage loan is a key ingredient
to becoming the member's primary financial institution (PFI). Members have
proven to be more loyal to the financial institution that has their mortgage
loan. Credit unions that offer online loan application capabilities, therefore,
are creating additional opportunities to receive applications and reinforce
their PFI status.
There are several barriers that credit unions need to address to implement
a successful online loan application program. These include:
- Not listing enough relevant material online: The number one complaint
that members have with online applications is the lack of educational material
regarding their specific decision. Lending personnel should brainstorm frequently
asked questions and develop strategies to address members' concerns and/or
areas of confusion.
- Not providing sufficient follow-up: While developing an online mortgage
application will provide lending staff more time for other projects, members
still need access to a live person. Credit unions should assign a loan officer
to each application and hold the employee accountable for following through
with that individual in a timely manner.
- Not understanding why the member abandoned the application: Credit
unions need to understand why a member failed to complete an online application.
Credit unions need to get it right the first time or have a process in place
to contact the member and address his/her concerns immediately.
Online mortgage application programs can enable credit unions to deliver significantly
more value to their members and achieve greater efficiencies.