Keep your foot on the gas pedal

There’s no question that real estate lending continues to play a key role in a successful strategy for many credit unions, whether the market favors refinancing or purchase loans. Making mortgage loans provides good service to members and provide meaningful revenue for the credit union.

And now, when there is no question that we have moved into an environment where the majority of business is purchase loans, it’s more important than ever to keep your foot on the gas pedal. That’s right: Keep on pushing; keep on making those loans.

Many in the mortgage business said credit unions were ill-prepared to handle the shift to purchasing money, but the statistics demonstrate that not only have credit unions made market adjustments, they have also increased market share.

In the first quarter of 2017, credit unions grabbed 8.57% of total U.S. residential mortgage originations, up from 7.59% in 2016. That continues a trend that has gone from a tiny 1.41% share in 1989 to a then-record 2.61% in 2007, and on to 4.66% the following year (helped by consumer reaction to Wall Street and Big Bank failures that crippled the economy), topping 5% in 2010, reaching 6.53% the next year and 7.48% in 2014.

To keep growing its share of the pie, credit unions will need to work hard—keep pushing—in a market increasingly swinging to purchase loans.

How much of a swing? Well, in the fourth quarter of 2106, the Mortgage Bankers Association (MBA) reported that refinances comprised a bare majority (51%) of mortgage originations. In the first quarter of 2017 that total slipped to 41%.

Looking ahead, MBA predicts refi’s will keep dropping—to 32% in the second quarter of this year and 28% in the third quarter. And the 2018 forecast puts refinances between 23% and 30% of the mortgage market.

OK, you say, we’ve handled things pretty well up to now. So why should we be worried? Two reasons: You’ll need to up your game to handle even more purchase loans and while you’re looking for a bigger slice of the pie, that entire pie is getting smaller.

In 2016, residential mortgage originations totaled $1.89 trillion dollars, according to MBA. In 2017, the forecast calls for a total of $1.6 trillion, or nearly $300 billion less than the previous year—no small chunk of change.

Smaller pie means more competition. So get ready. And don’t take your foot off the gas!

While credit unions have shown we can be players in the purchase market, we can’t slow down, we can’t miss opportunities. Make sure you are doing these things, many of which are topics ACUMA delves into at its workshops and conference:

• Cultivate relationships with Realtors, who as partners can point business your way (and bring you, new members—maybe even Realtors among them). And be certain they can contact you when necessary—including weekends when they are the busiest.
• Review and update your products (continually) to ensure you have the “right fit” for first-time homebuyers and the markets you serve.
• Meet members on their own terms by providing a variety of application and communication channels (face-to-face, online, email, print, text messages, etc.) so they can select the best option for them. And a corollary: Set goals for responses and measure the data—quicker is definitely better.
• Move toward automation and digitizing more of the mortgage process. If you don’t, you will lose business to those that do.

Mortgage-lending credit unions that prepare for the future will have the best chance to succeed. Make sure you are ready for the challenges.