Cater to millennials, get on board with online auto shoppers and promote mortgages 24/7.
As credit union executives and industry partners set their course for lending in 2021, they share prime areas for growing auto loan and mortgage volume.
1. Reach out to millennials. $840 million/60,000-member Point Breeze Credit Union, Hunt Valley, Maryland, forecasts 5% loan growth for the coming year, with a primary focus on targeted marketing to millennials, a generation that is 20% more populous than GenX, says President/CEO Bernard G. McLaughlin, a CUES member.
Generational differences between millennials and previous generations are either overblown or just plain wrong, McLaughlin suggests. People in their 20s and 30s want to own their own homes just as their parents and grandparents did, and they’re not making a choice to wait to jump into the housing market. Rather, they’ve been saddled with student loan debt and difficult economic conditions.
“Since 2016, the hurdles that millennials have faced are easing,” which makes this generation a prime audience for credit unions, he says. Traditional life cycle purchasing behaviors can guide marketing, from getting that first auto loan to saving for a home, to qualifying for a mortgage and paying for child expenses, and on and on.
2. Join the virtual auto shopping wave. With online car shopping on the rise, Bob Child, COO of CUES Supplier member and CU Director subsidiary Origence, Irvine, California, advises credit unions to work with dealers to promote preapprovals and “get as much of the financing transaction done online before individuals show up at the dealership”—if they go to a car lot at all. Innovative dealers have introduced delivery to online buyers’ front doors, and “some of those trends will be here to stay,” he suggests.
Origence’s AutoSMART facilitates shopping for vehicles online, and its CUDL network, which connects to 16,000 car dealerships across the United States, makes it easy for members to apply for preapproval online so dealers can see upfront that they qualify for a loan up to a specific amount, which “expedites the borrowing process.” That system is designed to populate dealer financing applications with preapproved offers for members when they enter their name and credit union.
AutoSMART saw a 12.5% increase in site visits nationwide over the past year, a bit higher than the steady gains in adoption since the service launched in 2007.
3. Play to your auto lending strengths. In this persistent low-rate environment, credit unions’ track record on auto loan terms and pricing may help them win over more borrowers, Child suggests.
“Credit unions tend to go a little bit larger on the average amount financed compared to banks and finance companies—a little over $2,200 more on average on the total dollar amount that can be financed,” he says. “They don’t go out the longest on terms, but when you combine their sweet spot of 73 months with low interest rates, credit unions offer the most competitive product in the marketplace, particularly for prime and super-prime consumers.”
4. Win back auto loans through refinancing offers. A compelling lending opportunity for credit unions in 2021 will be to take advantage of low interest rates with targeted refinancing offers to members making auto loan payments to other financial institutions, Child suggests. “We’re encouraging all of our credit unions to go back through the applications they lost in in 2019 and 2020, identify which ones are members and send out refinance offers to them to get those loans on their books. I think it’s going to be a banner year for refinancing in 2021 in the used auto space, particularly for certified pre-owned cars where we see a lot of prime buyers.”
While their mortgage business will likely take up significant resources over the coming year, credit unions should maintain their presence in auto lending, he adds. “Car dealerships look for that loyalty, for the lenders that staying with them instead of coming in and out of the market. Staying in the market to maintain that loyalty will pay dividends, both in quality and quantity of loan application opportunities.”
5. Go all out on promoting mortgages. Too many credit unions rely on occasional ad campaigns to get the word out, contends Steve Hewins, SVP of CUESolutions Bronze provider CU Members Mortgage, Dallas. “Selling mortgages is a 365-day cycle. You have to be an active participant in letting your members and your partners know your credit union makes mortgages.”
Frontline staff should be trained to listen for “trigger words” suggesting that members are shopping for a new home and to be comfortable talking about their credit union’s mortgage products. And mortgage loan officers should be coached “to tell a great story about why rate is not the only factor” in choosing where to apply for a home loan, he suggests.
It’s also essential to connect with realtors to establish the credit union’s reputation as a mortgage lender willing to work with borrowers and to close loans on schedule. Credit unions invest a lot of time and effort with some first-time homebuyers to guide them to build their savings and credit standing so they can qualify for a mortgage and then when, they’re ready to go house hunting, their realtors may steer them toward a different lender they know and trust, Hewins warns.
“The housing market is very tight, so when realtors get a deal, they’re very protective of it, and they want to make sure that deal closes on time,” he notes.
For credit unions in the early stages of marketing their mortgage services to the realtor community, Hewins suggests starting within their member base. Realtors who belong to credit unions understand their value proposition but may not know about their mortgage lending expertise.
Another obstacle to growing mortgage volume are online lenders promoting low rates and a simple application process. As consumers become more comfortable with remote banking and comparing rates and terms online, qualms about applying for a mortgage online are disappearing.
For credit unions that keep mortgage servicing in-house, that long-term connection can be a key differentiator, especially among homeowners who’ve had issues after their mortgage lender handed off servicing, Hewins suggests.
Unlike other types of loans, “a mortgage is a relationship, and that relationship goes beyond rates,” he adds. “Once you’ve done the hard work to build this pipeline of home buyers, you don’t want to lose them to a realtor referral or an online competitor.”
6. Mine every mortgage option for members. CU Members Mortgage has partnered with Freddie Mac on its new BorrowSmart program, which combines financial education to prepare low- and middle-income members for homeownership with up to $1,500 in direct assistance applied to a down payment or closing costs. BorrowSmart offers “an extra push of cash to get them over the finish line for members who are otherwise well-qualified,” Hewins says.
Karen Bankston is a long-time contributor to Credit Union Management and writes about lending, operations, technology and membership growth. She is the proprietor of Precision Prose, Eugene, Oregon.