More homebuyers are turning to credit unions for mortgages.
In the first quarter of 2015, the share of the mortgage lending market for credit union increased to 11%, compared with 7% during the same quarter two years ago, according to a report by TransUnion released in August.
The trend of credit unions becoming bigger players in mortgage lending was confirmed by another survey by TransUnion of 90 credit union executives. Nearly 60% of respondents said mortgage originations to credit union members had increased in the past two years.
“Mortgage originations had declined substantially across the board in the last few years; however, the decline had been less dramatic for credit unions,” Nidhi Verma, director of research and consulting in TransUnion’s financial services business unit, said in a press release.
“In the last year alone, it appears significantly more credit union executives are seeing growth in this area,” Verma said. “Credit unions are becoming bigger players in the mortgage loan market, something that may serve them well in the future as the housing market continues to recover.”
Impact of Great Recession
The growing mortgage volume for credit unions can be attributed factors including the Great Recession and more restrictive lending practices by the big banks, credit union industry experts say.
“First, the Great Recession shook up the mortgage marketplace,” said Jeff Coward, vice president of mortgage lending at Virginia Credit Union. “Large banks restricted access to credit as a means to conserve capital and reduce risk. Second, many smaller competitors such as brokers and small mortgage banks shut down in the face of greater regulatory scrutiny and reduced access to capital. This left a hole in the marketplace that credit unions were able to fill.”
More than loan originations are growing. Credit union membership increased by more than 1.5 million members in the third quarter of 2015, the fastest growth quarter in credit union history, according to the CUNA Mutual Group.
Providing more intimate, personalized service is a big advantage credit unions have over large, national lenders, Coward said. “Knowing that someone in your locality is handling your transaction is comforting,” he said.
Credit unions also have widened their production offerings, making them more relevant in the mortgage marketplace. For example, Virginia Credit Union offers conventional conforming mortgages as well as FHA, VA and USDA Rural Development mortgages.
“Additionally, we have a relationship with the Virginia Housing Development Authority to offer products designed for first-time homebuyers,” Coward said. “The result has been continued year-over-year growth for the past three years.”
Credit unions are a best-kept secret when it comes to mortgages, said Keith Troup, executive vice president and COO at Y-12 Federal Credit Union in Oak Ridge, Tenn.
“Many credit union members do not know credit unions do mortgage loans,” Troup said. “My credit union is no different. Do most (members) know? Yes, but not all. I think that is the No. 1 challenge.”
To increase awareness and loan volume growth, credit unions are employing strategies to expand their mortgage market presence — from having loan officers conduct lobby days at branches to hiring people to develop relationships with Realtors.
“Our credit union hired a chief lending officer and a mortgage manager in the last 12 to 15 months and they certainly had some different ideas,” Troup said. “And we made some changes and we have seen some very good growth in that area ourselves.”
Credit unions also are becoming more aggressive in their marketing efforts. “Some of the biggest [credit unions] you may see on the national media, and some become much more involved in the naming of facilities in the communities they serve whether it be a theater, community park or sports venue,” Troup said. “I think credit union outreach in the community is part of the key strategy to increase awareness.”
At Virginia Credit Union, Coward said, “We employ effective marketing to our members across multiple channels, both traditional and electronic. In addition, we’ve broadened our range of product offerings to meet our members’ needs. Those approaches help to ensure that our members think of their credit union when considering a home purchase or refinance.”
But that growth cannot occur at the expense of eroding the personalized service most members expect, industry experts say. Banks have invested millions of dollars on technology to focus on compliance and improve customer satisfication. Credit unions have to focus on improving the member experience, especially when a member is away from home and wants to do a transaction remotely.
“I think people want to do things when they want to be able to do it,“ Troup said. “Credit unions need to be able to support that.”
Freelance writer Robin Farmer contributed to the writing and research of this article.