It’s unclear when or by how much the Federal Reserve will change the Federal Funds Rate, but the potential for a near-term rise looms. In anticipation of that inevitability, cooperative lenders such as Silver State Schools Credit Union ($667.3M, Las Vegas, NV) are transitioning their mortgage portfolios away from the refinance business to the purchase money business.
Eventually we are going to see interest rates go up, and the market will shift, says Steve VanSickler, chief credit officer at the Las Vegas-based institution. If you’re not doing anything today to move from refinances to purchases, it’s going to be a hard road for your mortgage originators.
CU QUICK FACTS
Silver State Schools Credit Union
Data as of 06.30.15
HQ: Las Vegas, NV
ASSETS: $667.3M
MEMBERS: 52,521
BRANCHES:9
12-MO SHARE GROWTH: 1.7%
12-MO LOAN GROWTH: 4.4%
ROA: 2.39%
On the balance sheet, more than 80% of Silver State Schools’ total loans are real estate loans, well above the 49% average for its asset-based peers. Of those real estate loans, 76% are first mortgages.
Currently, more than 50% of the credit union’s mortgage production is purchase, VanSickler says. Going forward, he’d like to see that number closer to 80%.
To help make that goal a reality, the credit union introduced its Realtor Cash Rebate Program in the first quarter of 2014. This option gives members a way to earn back 25% of their real estate agent’s commission when they buy a home.
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The Realtor Cash Rebate
On its website, SilverStateCU.com, the credit union lists seven real estate agent partners in the Las Vegas area and is considering adding an eighth.
To qualify for the rebate, potential homebuyers must visit the site, select one of these agents, and complete a form before reaching out to them for home-buying assistance. However, recognizing the importance of a good fit between a real estate agent and a buyer, Silver State Schools does allow members to move from one agent to another on the list.
On the same page, Silver State Schools also includes a table that estimates what a potential rebate would be for homes at various price points, assuming a 6% commission.
| Average Rebate Savings | |
|---|---|
| Home Price | 25% Rebate** |
| $100,000 | $750 |
| $200,000 | $1,500 |
| $300,000 | $2,250 |
| $400,000 | $3,000 |
| $500,000 | $3,750 |
| **This rebate chart is used for estimating purposes only. | |
Once the member finds a home, the partner real estate agents are contractually obligated to take the financing to the credit union first; however, Silver State Schools cannot require the buyer to choose the credit union for financing. If the borrower moves forward, at close, they will receive a 25% cash rebate from the real estate agent.
Creating Member Value
There are, VanSickler says, turnkey systems for programs like this, which the credit union did consider. But ultimately it decided to create and manage the program internally so it could provide the best possible member benefit.
For example, Silver State Schools can directly control which realtors are in the program.
We didn’t want someone else telling us who our members had to use, VanSickler says. No one could give me assurance that my members would have a choice and would be able to move from one realtor in the program to another.
Of those agents in the program, Silver State Schools has worked with every one in some capacity. A few sold foreclosed properties the credit union had repossessed, and some came from referrals from the credit union’s mortgage originators.
Beyond personality and business acumen, the credit union screened real estate agents based on factors such as their base of operations and market familiarity. Las Vegas is a city of nearly two million people and to serve that population, Silver State Schools selected qualified real estate agent partners from across its footprint, from downtown Las Vegas to nearby Henderson.
Additionally, the credit union looked for agents who primarily worked with buyers, not sellers.
We wanted people who were working with people who were trying to find homes, VanSickler says.
The credit union interviewed candidates and conducted background checks through Yelp and the Better Business Bureau and even cross-checked its top choices a final time by running them by other realtors in the Greater Las Vegas Association of Realtors, VanSickler says.
Creating Realtor Value
To build a truly successful program, the credit union had to make sure it was driving value on the other side of the equation as well.
For example, Silver State Schools knew it could save real estate agents money by building its own program because certain turnkey programs require agents to pay for each transaction. This means they not only lose the percentage rebated but also pay for the privilege.
Silver State Schools’ program also helps realtors source new clients.
We ask, What are your sourcing strategies? How do you find your clients? How do you develop them?’ VanSickler says. Sourcing strategies come with a cost.
Now, the Realtor Cash Rebate Program acts as a sourcing cost, at 25% of commission. But instead of advertising on traditional channels in a top 50 media market, the agents enjoy direct access to high-value, ready-to-buy clients.
Of course, Silver State Schools doesn’t want this program to be an agent’s only source of business. Instead, it sees the program as a way of connecting agents with a more intimate client base from which the credit union can also benefit.
Ideally we want to aid them in getting clients, but this is a strategy to get business from realtors, VanSickler says. We want to get mortgage loans and the buyers the realtor is working with.
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