Sorohan, Mike 
Instability in the mortgage lending industry gives credit unions a "tremendous opportunity" to seize market share, reports a white paper from PCLender.com, Honolulu, Hawaii.

“Credit unions have what could be a once in a lifetime opportunity to expand their mortgage operations by either expanding existing operations or entering the sector for the first time,” said Lionel Urban, co-founder and president of PCLender.com and author of  The Future of Mortgage Lending. “They enjoy a special connectivity to their members, not usually seen between for-profit institutions and their customers.”

The Credit Union National Association reported that 85 percent of members with a first mortgage at a credit union consider the credit union to be their primary financial institution. However, CUNA said while 56 percent of credit union members have a mortgage, few have mortgages with their credit union. Mortgage market share for credit unions was just 2 percent for most of this decade, although the number jumped in 2007, to 2.59 percent.

“Probably the largest financial product for individuals, mortgages can be the centerpiece of the credit union’s relationship with its members,” Urban said.

Credit unions are relative newcomers to mortgage lending, having received authority to offer mortgages only in 1978; the National Credit Union Administration did not issue mortgage lending guidelines until 1989. Until recently, credit unions treaded cautiously in the mortgage arena and also faced opposition from traditional banking institutions, which assert that credit unions enjoy certain advantages that do not provide a level playing field on which to compete.

Credit unions largely avoided the subprime meltdown and the worst consequences of the recent financial turmoil for two major reasons, Urban said. “First, as not-for-profit cooperatives, they are typically managed more conservatively than for-profit financial institutions,” he said. “With incentive to take risks, they did not saddle borrowers with unsuitable or unaffordable mortgages. Secondly, they hold most of their mortgages, 70 percent, in portfolio, selling just 30 percent into the secondary market, according to CUNA. That helps credit unions exercise a degree of connectivity with their members’ home loans that ensures real time response to loan servicing challenges.

TransUnion reported that mortgage delinquencies for credit unions were at 0.7 percent at the end of the first quarter of 2008. The Mortgage Bankers Association reported the seasonally adjusted delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 6.35 percent of all loans outstanding during that same period and at 7.88 percent of all loans outstanding as of the end of the fourth quarter of 2008.

Urban said credit unions should take advantage of personnel surpluses and a favorable public perception to increase mortgage market share.

“New legislation helps boost their financial standings, showcasing credit unions as a safety refuge at a time when many bank depositors are worried about losing their investments,” Urban wrote. “Mortgage banking veterans are waiting on the sidelines, ready and willing to offer their skills, and outsource providers are also prepared to provide their specialized services.

Additionally, the paper said technology can help credit unions narrow the gap in services.

“Credit unions can use imaging tools, capable of integrating document images from many sources and in multiple formats, to enhance collaboration among staff out outsource providers,” Urban wrote. “Credit unions can also draw on the cost effective abilities of [Software-as-a-Service] to tap best-of-breed tools without an in-house technology staff. Those technology tools can help credit unions deliver the kind of first class in mortgage lending that they have become known for in other financial services.”

Credit unions may “have no choice” but to expand their mortgage operations,” the paper said. “Providing a wealth of financial information, mortgages offer excellent cross-selling opportunities,” Urban said. “If a competitor sells a mortgage to a credit union member, the credit union’s entire relationship, including other loans and savings and checking accounts, is at risk. Mortgages create the strongest bond between the member and the credit union. Members with a credit union mortgage are more likely to go to the credit union for other financial services.

Urban said credit unions should not shy away from traditional mortgage lenders as competitors. “National commercial banks and non-depository mortgage bankers, which once dominated mortgage lending, have lost favor with both mortgage industry regulators and borrowers,” he said. “Their risky business models have brought about their demise and the collapse of the non-agency securitization created a credit crunch that left a void in mortgage lending.”