Mortgages, millennials, and military lending led off the opening day Tuesday at NAFCU’s 49th annual Conference & Solutions Expo in Music City.
The trade group’s first conference mortgage symposium focused on the opportunity for credit unions to build on their share of the housing market by engaging more deeply with millennials. And it wasn’t just about using a mobile app to apply. Much of the discussion was about leveraging the credit union difference.
Devon Lyon, director of education at NAFCU, says many millennials do an intense amount of research before they engage with a business, and also “love the idea of doing business with companies that give back beyond the profit motive. All the research indicates that.”
He says credit unions were “the original kickstarters, the original consumer financial protection bureaus, so don’t undersell the idea that you’re looking out for members and participating in the life of the community you serve.”
That’s across all delivery channels, whether pushing mortgages or messages, Lyon adds.
Opportunity Knocks, Compliance Woes
While the credit union industry’s growing market share has been well documented, there is ample room for growth. Symposium speaker David Allison, senior vice president with Dovenmuehle Mortgage, pointed out that American credit unions have about 100 million members, representing about third of the nation’s households.
“Credit unions are only doing about 10% of mortgages and most of the credit unions we work with only see a penetration rate of 3% to 5%,” says Allison, whose company provides mortgaging service to about 350 credit unions, banks, thrifts and other lenders.
The economy also presents opportunity, Allison says. He says active foreclosures have dropped below 600,000 for the first time 2007 and that in April there were 60,000 new foreclosure starts, the lowest such figure in the past 10 years.
Meanwhile, rates remain low and could even go lower, presenting growing opportunities for both new purchases and re-financing. “We’re seeing rising employment, income, and housing prices, and the credit market should stay this strong or stronger, barring some kind of economic shock,” Allison says.
That said, the wet blanket as usual is compliance. Allison says his company employs 50 people in compliance enforcement along with 17 attorneys, “and we’re just doing servicing.” While still recovering from the implementation of TRID, he added, the CFPB has been ramping up servicing rules and state regulators and municipalities also are getting more active, particularly in the areas of delinquent and defaulted loans.
Plus, there’s constant change. “The industry is transforming right before our eyes, faster than it ever has, in terms of who’s gaining market share and product development and technology,” Allison says, and that along with regulatory costs are causing some re-think, including the exit of some lenders who no longer see the gain worth the pain.
That opens the door wider for credit unions. “You have an extremely loyal member base and a natural marketing advantage with a brand recognition that most of the competition just doesn’t have,” Allison says. “If you’re competitive with the mortgage products people want, many will prefer to work with you.”
Patience And Parents
As for growing the mortgage market among younger buyers, self-described “aging millennial” Michelle Burretta, 35-year-old market research and segmentation manager for Genworth Mortgage Insurance, prescribed patience.
“Marriage, babies, and mortgages are coming later than they used to,” she says. “Circumstances they face may be much different now, but not the goals.” She also pointed to research that indicates that regardless of age, price matters more than process when it comes to buying a home.
A Collingwood Group survey found that 79% of respondents ages 24 to 34 would not be willing to pay slightly more for a completely online and streamlined application process, Burretta says. That number actually dropped slightly to 76% saying “no” among people ages 35 to 75. And 75% of the younger crowd said they would be more comfortable applying for a mortgage with a traditional lender than an alternative lending platform. That figure was 68% for the older group.
Burretta says millennials also still often rely on their parents for guidance, “so don’t hate, appreciate. Embrace the characteristics and experiences of the millennial generation with financial literacy programming and invest in your future by hiring millennials to leverage their talent, ideas, and new perspectives.”
They don't know what they don't know, they're not afraid of anything, and I just told them not to blow the place up.
Phil Clarey digs. The 66-year-old CEO of Tulare County Credit Union ($90.0M, Tulare, CA) says most of his senior managers are 35 and under. “They’re all smarter than me and they think differently than I do,” he says. And, befitting a credit union that serves a mostly rural, agricultural area, they’re homegrown, too, reflecting the community’s diverse mix of Latinos, Anglos and Portuguese.
“You can’t get anybody to come to central California like this without paying an arm and a leg, and we can’t afford that,” Clarey says. “I told my board four years ago to give me 10 years to develop an organization for the future, and that’s what we’re doing here. They don’t know what they don’t know, they’re not afraid of anything, and I just told them not to blow the place up.”
They’re not blowing anything up at Dover Air Force Base, either, although Jim DiDonato will be sad to see one old building come down. Nearing retirement from the Army National Guard, he’s a director for Dover Federal Credit Union ($440.7M, Dover, DE) and says he’ll the miss the 45-year-old branch on the air base that’s giving way to a smaller, more sophisticated facility.
“I hate to see it go. We’re making sure our branches now aren’t cookie-cutter versions of the past. But we’ll always maintain our connection to our past,” he says, noting that the credit union’s first office was a closet in the maternity ward of the base hospital.
That connection includes the lasting value of credit unions. “I believe in them and believe in instilling an appreciation of their value in our young soldiers and other millennials,” DiDonato says. That value also must include cutting edge banking products and services, says the chief warrant officer whose civilian job is as director of banking services for the state treasurer’s office.
Meanwhile, nearly every credit union in the country will be gaining a new appreciation of the Military Lending Act’s new rules and regs. One set covering many consumer products – excepting cars and mortgages — takes effect on Oct. 3, 2016, while new credit card rules kick in on Oct. 3, 2017.
One headline is a 36% cap on APRs for “consumer credit” extended to an active military member or family member of same, while another is the responsibility for financial institutions to determine who is such a “covered borrower.” There remains a lot of ambiguity, however, says Brandy Bruyere, NAFCU’s director of regulatory compliance. That includes around safe harbor disclosure and collections issues.
The new rules also up the ante for credit unions and other lenders to know who they’re lending to. Rather than just having borrowers sign a form, lenders will need to either go to a Department of Defense website that lists service members, or rely on a new system expected to be available soon from the three major credit bureaus.
The new rules were a focus of the Defense Credit Union Summit that again kicked off the annual NAFCU meeting, and Bruyere has been following their development in her blog and FAQs.
“Obviously this is a bigger issue for credit unions with a major military presence, but it really affects everyone,” the NAFCU regulatory specialist says.
The NAFCU conference continues through Friday in the Music City Center in downtown Nashville, TN.