The Early Bird gets the Worm...

It pays to be patient. The current subprime fallout is driving the record-breaking lending volumes credit unions experienced during the first quarter of this year. Let's not take it for granted.


The early bird gets the worm, so says the well-worn phrase. Yet the second mouse gets the cheese, mused author, comedian and aphorist Steven Wright.  As I read this I thought instantly how well this simple observation contrasts the subprime crisis with the housing finance opportunity credit unions now have.   As the early-bird sub-primers were after the worm, we  - - credit unions - - stuck to the type of lending we know best.  We've always concentrated on conventional lending, keeping our members safe in the process, and keeping us in housing finance for the long-term. As if getting the worm weren't enough, subprime lenders went for the cheese, too.  Only this time they got caught.  High yield equals high risk.  Deals that seem too good to be true usually are.  And they were.  When the market came crashing down, credit union mortgage lending increased as members finally realized credit unions are the safe, reliable lender more interested in a relationship than the paycheck they represent.

It pays to be patient, to be the second mouse.  Credit unions have been presented with the single greatest opportunity in mortgage lending since 1978, when it became legal for federal credit unions to make long-term mortgage loans.  The current flight to safety isn't transient. A fundamental shift in market dynamics is driving the record-breaking lending volumes credit unions experienced during the first quarter of this year.  Let's not take it for granted, though; let's take action to ensure this is the beginning of consistent, year-over-year market share growth we've desired.  Here's what our industry should focus on now:

Member Education.   Credit unions were founded on basic tenets, member education being chief among them.  One lesson of the subprime crisis is this: borrowers did not understand what they were getting themselves into.  Housing finance literacy is extremely limited.  Mortgage finance is vastly misunderstood; credit unions have the opportunity to correct this.  Now's the time to position our industry as the experts in long-term sustainable housing finance.  

Lending Strategy.   Q: How do we leverage our current 'favored nation' status as lenders for the long-term?  A: By focusing on segments of our memberships where both members and credit unions win.  Two come immediately to mind, and they intersect: first-time homebuyers and emerging market buyers.  Think about it – this is one of the best times in the past decade to buy a home, especially for the first-time buyer.  With 30 year fixed rate financing under 6%, the cost of borrowing is low.  A lower cost of financing means housing is more affordable.  Housing prices are down, too, and, where they aren't down, they are not appreciating as rapidly as they were during the irrationally euphoric market of several years ago.  Where it was more advantageous to be a seller, the spoils now go to the buyer.

Why first-time homebuyers and emerging market members?  Credit unions develop long-term relationships with their members.  These two member segments likely represent a younger age demographic than the average credit union member, which presents a possible solution for an industry problem.  The average credit union member is 48 and aging.  Working with a significant number of first-time buyers has the potential to lower the average age of our membership, a step that's crucial to our long-term ability to thrive.   And these members are looking to establish life-long financial relationships as well.  That's a win for them, and a win for credit unions.  Emerging market members, too, are looking for financial service providers they can form relationships with, too.  Once credit unions earn their trust, they'll become loyal members.

How do we, however, convince members that now is a good time to consider a home purchase?  If the veteran homebuyer is anxious these days, imagine the psyche of the first-time buyer.  If we want to get their attention (and we should) we'll have to be ready with information, education, and expert assistance.  This provides us the perfect opportunity to demonstrate the credit union difference.

Member Awareness .  Members are waking up to the idea that their credit union is the best choice for financing their home.  The markets are doing for us what we've been attempting to do for 30 years.  While that's positive, it does not mean we can discontinue the mortgage awareness advertising we've been engaging in.  Quite the contrary. Now is the time to redouble our awareness efforts so the current market impression becomes a lasting market impression.  There's really no magic in this.  Newspaper, radio, TV advertising all work.  How about writing a regular column for a local paper?  Appearing on local radio shows?  Speaking to the local Realtor Board?  The first rule in advertising: repeat your message until the public is tired of hearing from you. Members and the public aren't yet tired.

Getting what the early bird gets isn't always as attractive as it sounds.  Patience, on the other hand, pays off, as the market has proven yet again.  Let's capitalize on today's market opportunity to ensure we turn it into a long-term, sustainable and permanent advantage.



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April 7, 2008