Interest rates are in a valley, and sources of non-interest income are wilting. These developments have hit credit unions with a particular ferocity, but they’ve also generated opportunities. Using a member-centric attitude and the resultant goodwill, Tower Federal Credit Union (Laurel, MD, $2.2B) opened Tower Title Services to nurture the field of non-interest income back to fertility.
Tower Federal Credit union has more than 20,000 members, but the core of its membership is the National Security Agency. The credit union has more than $1.4 billion in loans, made up of mortgages, equity and consumer loans. Mortgage loans make up 57% of the portfolio.
Before the credit union could turn Tower Title from concept into reality, it had to gauge member attitude. Barry Stricklin, real estate lending manager for Tower FCU, says members wanted not only lower costs but also convenience. Tower Title offers low fees and closes deals on holidays or at times and in locations that are most convenient for members.
The largest hurdle for title companies is capturing business, but the relationship between a credit union and its members offers an advantage. In Tower’s case, the relationship equity made it easier to clear the new-business hurdle and establish a viable model. Nine out of 10 members that come to the credit union for a real estate loan purchase title services when offered. For members that come for refinancing, 99.8% opt in.
The most significant decision when starting a title company is the first hire, Stricklin says. The thinking makes sense in that fewer employees equal less room for error and more blowback when a poor hire happens. Stricklin recommends honing in on and hiring someone who knows the title industry well.
Once the hires are made and the title company gets rolling, other revenue streams come into focus. Because Tower Title is in a CUSO, Stricklin says, he can offer his services to real estate agents and smaller credit unions in his area. The benefits there are straightforward.
The scalability of the business represents another asset. Tower Title’s employees process approximately 125 transactions per month (during the 2009 refinancing boom, that number was approximately 300 per month). Although the business is volume-based, Stricklin says low-volume periods shouldn’t dissuade credit unions from exploring the service, as it appeals to members who are looking for a home loan during any economic environment.
Last year, Tower Title netted $1 million in income. It grosses between 70 and 80 basis points per loan, and Stricklin estimates it clears 45 to 50 of those points after paying overhead and staff.
Clearly, credit unions are sitting on wells of relationship equity and innovation. Launching a title services arm is just one way to capitalize on those resources and reverse a non-interest income drought.