The meetings were getting to be too much, thought Richard Koenig, CEO of Milwaukee Metropolitan Credit Union in Cudahy, Wisconsin. Koenig had been trying to get other area credit unions to take an ownership position in Central States Mortgage. For two years he has invested untold hours trying to get the credit unions to pool money to create a powerful, multi-owned CUSO that would deliver a full range of mortgage products for credit union members.
By 1997, the time had come to take action or give up on the idea, says Koenig. “Things just seemed to be taking too long, and I had given it all I could. I just wasn’t willing to attend any more meetings if nothing was to come of it but talk. It was time to move.” At the next organizing meeting, Koenig announced that “this is my last meeting,” and walked out.
Within ten minutes of leaving the room, Koenig got calls from two CEOs indicating they would be support the CUSO concept. Others soon followed, and the CUSO, Central States Mortgage, is now the third largest multi-owned CUSO in the country.
The path from a small Wisconsin mortgage broker to powerhouse CUSO that serves some 250 credit unions began when Central States CEO Dick Jungen approached Koenig in 1995 seeking to take over Metro’s mortgage department. “I closed our mortgage program, sent two employees to work at Central States, and we opened under the Central States umbrella,” Koenig said.
The program proved successful, but both men had bigger ideas: they wanted to get other credit unions to participate. “It was always my intent to share this with other credit unions,” Koenig added. So when Jungen came to him again, asking what it would take to partner with other credit unions, Koenig had the answer: ownership.
Koenig first sought approval from the state regulator. Since credit union investments in CUSOs are limited to a certain percentage of their assets, Koenig had to determine the appropriate investment requirements. Koenig calculated an initial valuation for the CUSO and a method for credit unions to purchase shares in the new entity. Thirteen credit unions bought into the CUSO and served as the founding members.
The initial investments in the CUSO and Koenig’s perseverance have paid off handsomely. Central States underwrote over $1.4 billion in home loans last year. “It was a pretty easy climb after we got started,” says Koenig, “We have since expanded to include a title company and a real estate company.”
There are now 26 credit union owners who own 70% of the CUSO and seven private owners who own the remaining 30%. The CUSO’s governing laws restrict the private owners from ever taking control of the CUSO. In practice, since the board of directors includes four credit union CEOs and four private owners, the credit unions prevail in the case of a split vote. Over time, credit union ownership has expanded as private owners sell their shares. “The Illinois Credit Union League is now on board and we are now offering sub-prime loans,” says Koenig. We’ve come a long way since the start, but it has all been very precisely done, very methodical.”
For Metro’s part, the CUSO has returned its investment in spades. “Since 1997 when we opened, I’ve added between $7 million and $8 million to the bottom line,” said Koenig. “That’s approximately $1 million to $1.5 million a year, and I have no overhead. And the members are being served far better than I could have served them as a standalone.”
“The lesson I’ve taken away from this is simply that credit unions working together can make anything happen. Here in Milwaukee, we’re all community charters, so there is the usual overlap. But we’ve all agreed to respect the other’s members. We can do that because we’re credit unions. Right now, we have $142 million in the pipeline, so there’s no slowing down for us.”
To gain more insight into the impact and evolution of CUSOs, check out the 2005 Directory of Credit Union Cooperatives.