When Members 1st Federal Credit Union ($1.8B, Mechanicsburg, PA) saw its percentage of mortgage refinance requests versus purchases nearly double from June 2010 to September (and the dollar amount almost quadruple to nearly $14 million in the same time frame), the institution knew it had struck a point of need. Members in Pennsylvania, like many consumers across the country, were looking for a way to make the low rates touted in headlines translate to their bank accounts.
“We know from many applications that 90% are in fact lowering payments or shortening the term,” says Fred Ryerse, senior vice president of lending at Members 1st. The credit union’s CEO, Robert Marquette, credits the campaign with putting bread on the table for members.
Much more than temporary assistance, these monthly savings increase consumer confidence to spend and will help reinvigorate the economy in the days to come.
A Time of Opportunity
News coverage labeled it as a “surprise,” the third consecutive month of an increase in retail sales, up 0.6% in September. A small beacon of good news, it vied for attention amidst the now familiar concerns of jobs, economic growth, and other uncertainties dominating political and business airwaves.
Public debate about how to best remedy these economic worries generally falls into one of two camps: more government assistance and quantitative easing or a reduction of taxes and a limiting of government’s role to let the private sector take over. Yet another alternative is emerging, more immediate and practical.
The nation’s credit unions are showing there is a faster, more effective middle way between these seemingly polar opposites. In a BusinessWeek panel featuring five leading economists and business leaders on the topic of “How to Fix the Economy,” Pimco’s CEO Bill Gross was asked, what is there to be optimistic about right now? His response was this.
“Interest rates are extremely low [. . .] to the extent they stay low for a long time, then ultimately the ability to borrow — not just by big corporations but by smaller businesses and consumers alike — should lead to a regeneration of growth.”
This solution is already being put into action by the nation’s credit unions, with proof of its effectiveness apparent in the daily lives of their members.
Solutions for the Member
The economy is not in short supply when it comes to financial or material resources needed to stimulate growth. With consumer spending making up roughly 70% of gross domestic product, the problem is demand, with consumers and businesses reluctant to spend.
The solution is to give consumers, especially those with debt, access to the same low interest that corporate America has been benefiting from for the past two years.
Unlike corporate America, consumers are often not sure of the rate on their loans, or if they are, they don’t know what they can do about it. “Didn’t I sign a contract?” is a frequent consumer perspective in these scenarios, followed by the question, “How do I find out if I can save money?”
According to an article in the New York Times, roughly two in three mortgage holders today would benefit from a new loan, but refinancing is not an easy process. Where and how battered consumers seek assistance is imperative, with the advantage of a local perspective clear for both the institution and the mortgage holder.
One such refi seeker, Tom Foley was sent a prequalification notice from a large lender, the article continues. After “a lengthy run-around,” he refinanced his loan at a local institution instead.
That is where credit unions come in. The quickest and surest way to help consumers access these historical low rates is the refinancing campaigns now underway around the country.
Where There’s a Need, There’s a Way
The Mortgage Bankers Association estimates more than $900 billion in mortgages will be refinanced this year. And as the credit union payoff calls to other institutions mount, these first efforts will inspire and pave the way for the rest of the financial services industry.
Credit unions, by their very design, provide immediate and accessible credit opportunities to local communities as a part of their core purpose. Their public policy role is to serve member needs in ways that for-profit institutions are reluctant or unable to. Their grassroots, on the ground, intensely local focus has put the movement in a natural leadership role as America struggles to jump-start growth.
Credit Unions are Getting Results
Household by household, community by community, hundreds of thousands of credit union members have already discovered the refinance solutions available at their local institution and gained personal access to the lowest rates seen in decades. This positive economic force is then multiplied by members spending their interest savings in their communities.
Here are three examples of credit unions making an immediate difference in the financial lives of their members through refinance:
State Employees Credit Union ($21B, Raleigh, NC) has reached $26 million in savings for over 12,000 households in just one year. Its members save an average of $115 per month from refinancing efforts.
Wright-Patt Credit Union ($1.9B, Fairborn, OH) has over $600 million mortgage dollars in queue for its CUSO, with around 80% of those being refis. Again, more than $100 per month is added to the member’s budget spending power for the life of the loan.
Educators Credit Union ($1.3B, Racine, WI) is on track for its corporate goal to save members $10 million in interest this year through refinancing; one particular Educator’s employee has saved members more than $1 million by lowering their interest payments.
Credit Union Public Policy Leadership
As other institutions follow the credit union example, real improvements for both consumers and institutions will continue to be seen, even in the for-profit sectors.
According to the Wall Street Journal, “[Wells Fargo] earned nearly $2 billion from originating mortgages [...] or more than double the $800 million reported in the second quarter and sharply higher than the $1.1 billion earned a year ago.” Wells’ 3Q boom, the article continues, is largely a result of refinancing activity.
Refinancing is a win for members with debt, for credit unions seeking loan assets, for the communities where the money is being spent, and as a policy example, with local initiatives seeding macro economic objectives. The nation’s 7,000 credit unions, with more than $300 billion in investments, are an instant delivery system able to provide relief to consumers now. No special programs, no subsidies, no new rules or underwriting required; this is credit unions doing just what they were founded to do — grant credit.
As these efforts continue, high retail sales and other news of turnaround will no longer surprise the public. For many, it will have been their local credit union that first lit the way to a brighter economic future.