March 6, 2017 | By Ken McCarthy
Mortgages are a bread-and-butter lending product for many credit unions, but current conditions make the housing market ripe for those institutions to generate even more business.
Inventory of single-family homes is thin in many U.S. markets but buyers are out in force. Realtor.com recently reported that about 13% more people are looking to buy homes this summer, although there are 5% fewer homes on the market compared to last year.
Credit unions many times gather only the “low hanging fruit” and may not be doing as much as they could to generate mortgages, said Mike Powers, CEO of Better Homes of American Heritage Federal Realty, a real estate credit union service organization. Powers said some credit unions are not being aggressive enough in the mortgage purchase market because of the potential risk. But some large banks have withdrawn from the mortgage purchase market due to the cost and headaches associated with the TILA-RESPA Integrated Disclosure rule, or TRID, and credit unions could fill that void, he said.
Powers said some credit unions have only “dipped their toes in the water” on mortgage purchases because they are concerned about making and being stuck with bad loans. But he said those lending opportunities can be worth the risk as they often lead to other loans with those buyers. “It opens up a lot of cross sell,” he said.
Powers said there are multiple channels that are often used by traditional mortgage companies that credit unions can pursue to increase purchase mortgage activities, including on-line digital marketing and advertising, ongoing promotions within the branches and increasing the variety of loan programs.
John Giordano, CEO at First Heritage Financial, a mortgage CUSO, said in an interview that members of Generation X are now looking to move into bigger homes, but in many markets they are simply not available. Giordano said he talks to a lot of realtors who tell him the housing market is in the midst of an “inventory squeeze” in many markets, although that could change quickly depending on factors including the 2016 elections and the rate environment.
Giordano said Baby Boomers are clogging the real estate housing market because that group, as a whole, did not save especially well and had to take money out of their homes when the financial crisis hit. Many in that generation lost the value in their homes and have not quite recovered it yet.
Powers agreed that the number of houses being put on the market is well below normal levels. He said that factor combined with the pent-up demand and general home affordability creates a great environment to buy. “The problem is that there’s not a lot of inventory, which goes back to the fact that people are still trying to recover from the financial crunch back in 2008,” he said.
Mortgage rates have fallen recently and U.S. credit unions have taken advantage of it by putting significantly more mortgage refinance loans on their books. The refinance share of mortgage activity increased to 64.2% of the total application volume from 64% in the previous week, the Mortgage Bankers Association reported July 20.
Giordano said that when 30-year mortgage rates dipped to 3.25% the company saw a 22% spike in refi applications. He said that 3.25% rate was the lowest First Heritage had ever seen.
Giordano said prior to the recent dip in rates, many credit union members in the home purchase market were primarily looking for low down payments. When rates fell, many consumers starting considering the 20-year product. He said that product is not as popular because people who can move to a shorter term typically chose a 15-year mortgage. But the 20-year is attractive to consumers now from a pricing perspective and is leading to loan volumes in that product that have not been seen “in a long time,” Giordano said. Fixed-rate products are popular across the board because of the low interest rates. “I see a lot more people buying the 15-year product than I have ever seen before,” Giordano said.
Recent data from both the MBA and Fannie Mae has indicated that 2017 and 2018 could see lower mortgage production numbers, but Giordano is taking a wait-and-see approach. “We were supposed to be behind what we did last year but we’re almost even,” he said.