... and be prepared for when things slow down.
Sponsored by SWBC
The housing market is a fickle beast. It ebbs and flows, impacted by a number of economic factors, often leaving consumers and lenders alike absorbing copious amounts of information to try to best understand where it’s headed.
In early 2019, the market began to show symptoms of softening, something we had not seen since home prices began to rise again in 2012. However, by late August, the S&P Dow Jones Indices released June 2019 data showing home price increases on a downward decline. So very fickle.
One thing that experts agree on is that the current favorable interest rates and low housing inventory support refinance activity. According to Black Knight, 11.7 million U.S. mortgages have become eligible for a refinance simply due to the current low mortgage rates. As of the first week of September, Freddie Mac released news that the average rate for a 30-year fixed rate mortgage in the U.S. fell to an astonishing three-year low of 3.49%.
Low Risk, Low Growth
Likewise, it appears that default risk is relatively low as well. Loan delinquencies and charge-offs remain low, with delinquent loans totaling 0.63% of credit unions’ total loan portfolio as of June 30, according to CUData.com’s 2Q 2019 CU Industry Statistics and KPI Trends Report. However, despite low delinquencies, total loan growth has trended downward for credit unions, decreasing from a 10.6% year-over-year growth in 2Q 2015 to 6.5% year-over-year growth in 2Q 2019.
With the combined low interest rates and low delinquency risk, credit unions have the opportunity to capitalize on the current rate environment to increase their market share. By either leveraging your existing portfolio of members, or deploying an outreach effort, there is certainly a large pool of candidates available and interested in their refinance options. In fact, according to the Mortgage Bankers Association, August 2019 refinance volume expanded by 150%, year-over-year.
Create a Plan for Now and Later
When volumes are at their peak, tweak what you can and go full steam ahead. Even in the busiest of times, continue to nurture your Realtor network. Don’t lose your momentum and market share. Keep that purchase business in front of the line. Identify the most painful parts of your process and take note for future improvements.
Here are a few strategic changes to consider when things slow down to allow you to reach more members when the market heats up:
- Review your current portfolio lending policies to see if they are linked to your pain points— expand or tighten up as necessary.
- Review your valuation requirements for portfolio and second lien products. There are many hybrid valuation products that are less expensive, compliant and faster.
- Identify your technology deficiencies. Document your “workarounds” that require your staff to do multiple steps and request programming changes to offset technology inefficiencies.
- Educate your members at point of sale of the changing of the marketplace. Set expectations up front with your members. When the market changes drastically, ensure your staff is setting expectations with the members on turnaround times.
When volume slows, here are a few tactics you can quickly deploy to attract refinances, home equity and prospective buyers:
- Ensure mortgage and home equity Lending is front and center on your website with scrolling marquis banners and advertisements.
- Make sure your mortgages and home equity loan options in your phone tree get your members to the lenders who can answer their questions.
- Create and promote educational content on your credit union’s website or newsletter informing readers about the potential cost-savings of a refinance.
- Create email campaigns to your membership for those on e-statements.
- Advertise on statement envelopes for those members receiving paper statements.
- Update your digital road signs at the branch to encourage inquiries about your mortgage programs.
- Place signage throughout your branches advertising the latest offer and/or current rates.
Increased Applications —> Increased Need for Efficiency
If your credit union begins to see an influx of first mortgage or refinance applications, it increases your organization’s need for efficiency. If manual or antiquated processes or a general lack of technology slow down the application, underwriting and/or appraisal process, it can directly impact your bottom line—as well as your borrowers’ overall satisfaction.
The valuation process can be quite arduous and costly and, frankly, a traditional appraisal isn’t always necessary. Of course, it’s critical that you demonstrate to regulators that your portfolio’s equity is accurate and compliant. For credit unions competing with large banks and fintech industry disruptors, it’s important to find creative ways to leverage technological advances, unique product offerings and strong partnerships to streamline aspects of your loan-origination process.
Guy Taylor is president of SWBC Lending Solutions™, a provider of products and services designed to help credit unions decrease mortgage loan origination costs, achieve a seamless real estate process, provide faster turnaround times, and meet their compliance needs. Parent company SWBC is a CUES Supplier member based in San Antonio, Texas. Download SWBC’s ebook to learn how incorporating hybrid valuations into mortgage lending program can help your credit union reduce its loan origination costs.