Many call today the best buyer’s market in decades. With interest rates reasonably low and prices down from the housing boom’s peak, the time to purchase a home is now…as long as you can get a loan. The Federal Reserve’s March Senior Loan Officer Opinion Survey reported that 60 percent of the institutions surveyed have tightened lending standards on prime mortgages. So while it may be a great time to buy a house, mortgages are harder to be approved for than they were in the past.
The major focus in the media and within the financial services industry has been the refinancing of troubled mortgages. The often-overlooked opportunity is in the purchase market. And credit unions are in prime position to take advantage due to their avoidance of subprime lending and the fallout plaguing banks and others.
Tower FCU ($1.68 billion in Annapolis Junction, MD) recently developed and implemented in 2007 a strategy to capture purchase money mortgage loans. Tower originated $406 million in real estate loans in 2007. They have a low delinquency rate on real estate loans of 0.03 percent and a higher than average ROA of 1.33 percent.
Barry Stricklin, Manager of Real Estate Lending, asks the question, “Do you consider purchase money mortgage loans a product or a service?” His answer: “If your answer is product, you need to rethink your strategy!” he responds. Mortgage loan products are fairly similar across the board when your member is attempting to choose which institution will provide the mortgage. However, service is what can really set an institution apart from its competitors, and credit unions have historically excelled at member service.
With the focus on service, it is important to identify who the key service providers are in a home purchase transaction. Tower identified four key providers: the real estate agent, the mortgage lender, the settlement and title insurance company, and the internet. Barry notes the internet because over 75 percent of home buyers utilize the internet to assist them in the search for a home.
The other major obstacle for financial institutions to capturing new purchase mortgages is the real estate agent. Nine out of ten homebuyers use a real estate agent, who often put buyers in touch with a financing source.
Tower asked three questions that highlighted the importance of agents:
1. Who typically makes first contact with a prospective homebuyer?
2. Who has the most influence over the choice of a lender?
3. Who has the most influence over the choice of a settlement/escrow company?
The answer to all of these is the realtor.
How much control does the lender have?
Tower is attempting to take control of the real estate purchase process in hopes of making significant gains in the purchase mortgage arena. First, they are taking full advantage of the CU Realty network and website. This real estate service, specifically for credit unions, provides member’s access to local and national Multiple Listings Services, a twenty percent rebate on real estate agent broker fees on home purchases and sales, and an approved and experienced realtor. Tower also has their own title services company to handle settlements, and provide title insurance. To compliment these services, the credit union has implemented marketing and operating strategies to further improve service levels.
The key to getting a member’s home purchase mortgage is for the credit union to be the first place they call if they are considering a home purchase. Tower has distinguished it’s purchase money mortgage loans from the market by providing enhanced service and significant savings to members. This is the idea that Tower centered their marketing strategy around. The credit union used the following messages to help drive home purchase business:
“Come to Tower First”
1. Gain access to the MLS, estimate the value of your current residence, along with other valuable information such as schools, crime rate, shopping, and much more through our website!
2. Use our affiliated real estate agents and save thousands with discounts on broker fees!
3. Shop with confidence –free financing consultation and credit pre-approval from a trusted provider!
4. Save money and enjoy the convenient one-stop shopping with Tower Title Services performing your settlement; stringent time frames easily met!
Positioning the mortgage program using the above messages will get the point across to the member that the credit union is the first place they should contact for their home purchasing needs. Getting the member in the door is the first step, but keeping their business throughout the process is another important factor.
Tower’s strategy for success is that staying in contact with all parties of the purchase transaction is key. The credit union must stay in touch with the borrowers and real estate agents both during the home search and after the contracts are processed. Staying in touch until it’s over not only increases capture rate but even more important can help guide the member through one of the most difficult and important processes they will ever go through.
These initiatives have paid off. Not only has Tower captured more purchase money mortgages, but most important, members have benefited from the savings and enjoyed the convenient service. During 2007 Tower increased mortgage loan production by 48 percent over 2006. Household penetration on mortgage loans rose to 8.5 percent. A compelling statistic regarding the strategy is that the capture rate on a purchase mortgage loan is over 80 percent when a member uses our affiliated CU Realty service. During 2007 members using our CU Realty Service received an average rebate of $2,580. Our capture rate for Tower Title Services was over 92 percent with many members closing in 10 days or less. The real barometer of the level of service is the results of member surveys based on the “Net Promoter Score”. The average “Net Promoter Score” on mortgage loan transactions exceeded 90 percent. So far we are happy with the results. It has enabled us to help more of our members and provide an enhanced level of service with significant savings!