Midnight in credit union mortgage lending
Guest post written by Dan Green, Executive Vice President of Credit Union Solutions, Prime Alliance Solutions, Inc.
When was the best time in credit union mortgage lending?
If youâve seen Woody Allenâs latest movie, Midnight in Paris, then you may already know the answer to this question. The best time, of course, is right now.
Sure, we might long for the good old days when there were fewer regulations and credit was easier to access. But back then, there were also far more competitors and far less appreciation of our industryâs mortgage lending philosophy and capabilities.
These days, people are increasingly turning to credit unions for their mortgage needs. The momentum continues to build as negative depictions of Bank of America and favorable portrayals of credit unions in the media have helped spur interest in our direction. Credit unionsâ share of the mortgage market now stands at over 6 percent, an all-time high.
The Credit Union Housing Roundtable, a group of strategists in credit union housing finance, set a goal of reaching the 10 percent share threshold by 2016. That goal, which was set back in 2006, now seems not only achievable, but easy to surpass. This is the first of several reasons why the best time for credit union mortgage lending is now â thanks to all the free marketing weâve gotten through the media, more consumers know about credit unions than ever before.
Another favorable development weâve seen is the loss of competition. Consider that at one point, mortgage brokers controlled more than 40 percent of all housing originations. Today, they have all but left the business of originating loans. Itâs not surprising why the broker model has fallen out of favor â it was the riskiest channel.
By contrast, retail lending is todayâs preferred channel of choice because itâs the safest. After all, retail lenders know who their borrowers are. This is the second reason the best time for credit union mortgage lending is now â the marketplace has shifted to where credit unions excel. This also means that weâll be seeing a greater number of high quality loans.
On top of all this, rates are historically low and so are housing prices. In November 2011, the National Association of Realtorsâ housing affordability index was 194.5, nearly the highest itâs been since its inception in 1971. This is the third reason the time is now â affordably is better than at any time in the past.
These conditions mean that credit unions can help more members, especially first-time buyers, purchase homes than ever before. Are we ready to take advantage of this?
The first three âtime is nowâ reasons are strategic. The media has shoveled positive free press upon us, so more people know about credit unions. The market has moved to where weâve always been and housing is highly affordable. The fourth reason the time is now is tactical: HARP 2.0.
The Obama administration announced HARP 2.0 in November 2011 in an effort to help underwater homeowners refinance their loans to make them more affordable. HARP 2.0 is different from the first iteration of HARP 1.0 in that many of the original programâs restrictions are gone, including loan-to-value limits.
The new HARP program also removes the earlier restriction that lender and servicers could only refinance mortgages from existing customers. Starting in late March, any lender, including a credit union, can help any eligible borrower.
Large lenders already have marketing plans. They know who qualifies for HARP, some of whom are your members. As soon as the government-sponsored enterprises fire the starting pistol, lenders will begin soliciting. We need to ask ourselves: How are our marketing plans coming along for HARP 2.0?
While itâs a tactical activity, what we learn from participating in HARP 2.0 has strategic implications. The same marketing tools we use to identify who is eligible can be used to identify who will be buying their first or next home.
Still longing for the good old days? At the end of Midnight in Paris, Owen Wilsonâs character learned that the best time to live in Paris is when youâre living in Paris. So it is for mortgage lending. The best time to be a mortgage lender is the time in which you are lending. It just so happens there are four very good reasons why right now is that time for credit unions.
For more credit union resources from Prime Alliance Solutions, including webinars, whitepapers, podcasts and contact information, visit www.nafcu.org/primealliance.
Original article appeared in The Federal Credit Union magazine March/April 2012 issue. Download the article here.