Put the Deposit Deluge to Work

big wave crashing against rocks and spraying high into the air
Contributing Writer

9 minutes

Boost your loan portfolio with basics, including digital delivery and analytics.

Credit unions are awash in deposits, but they face challenges putting that money to work, as both traditional outlets—mortgage refinancing and auto loans—are under pressure. 

Some experts say the way to move forward is to focus on the basics—assuming your basics now include excellent digital offerings and data analytics—by listening to your members to determine their needs, then taking advantage of that information to market in-demand products, such as home equity loans.

Ironically, one of the reasons credit unions have experienced such an influx of deposits is that members have been paying attention to the financial advice they’ve been given. When people found themselves with extra cash because they weren’t spending—since most stores were closed due to the pandemic—or they received a government stimulus check, many first paid down their credit card balances, then put any remainder in a savings account. 

Those are great moves for individuals, but the situation creates a challenge for credit unions that now have too much cash on hand and are earning lower revenue from their card portfolios because balances are lower.

Steve Hewins
Senior Vice President
CU Members Mortgage
You can open a credit card on a whim. You can buy a car pretty much on a whim. You can’t go buy a house on a whim. It’s an extensive process, and you have to make people aware of the process.

Make Mortgages Happen Fast

The changing housing market is putting pressure on CUs to make sure they are ready to compete, says Steve Hewins, SVP of CUESolutions provider CU Members Mortgage, Dallas, a division of Colonial Savings, a federally chartered thrift that provides mortgage services to CUs and credit union service organizations across the U.S. 

For years, many credit unions have focused on the refinancing market, but rates have been low for so long that most homeowners already have shifted to loans with lower rates. Now, the market is focused on home sales. With limited inventory, lenders need to be able to respond quickly as owners compete to purchase available properties, Hewins says. 

“What we’re seeing is a very, very strong purchase market, and what’s hurting the purchase market isn’t rates right now—it’s really about inventory,” Hewins notes. “If credit unions are not prepared to compete in that market, then they’re behind the curve, and they really need to get up to speed.”

The challenge for many credit unions is that this business is not based on their current members, but requires referrals from real estate agents, title companies and other industry participants. 

“The ability of your lenders to close a loan within the contract date without having extensions is very, very important,” Hewins says. “The faster you can get over the finish line consistently, the more business you’re going to win, because word spreads.

“The one thing I keep telling credit unions over and over is, ‘Selling mortgages is a 365-day process,’” he adds. “You have got to be in the game every day and building awareness for your members and for the Realtors and the builders in your area that you are a player in this game.”

The biggest difference between providing mortgages versus credit cards and auto loans is preparation, Hewins says. Credit unions need to be prepared with their referral networks and prepare their members to succeed in finding their way through what can be a complicated process. 

“Your members have to make sure they have a down payment. They have to make sure their credit is in order. They want to make sure they have their documentation,” he explains. “You can open a credit card on a whim. You can buy a car pretty much on a whim. You can’t go buy a house on a whim. It’s an extensive process, and you have to make people aware of the process.”

Credit unions also need to ensure their front-line staff understand the process and feel comfortable discussing the issues and referring members to the mortgage lenders. “Their front-line staff, when they hear someone talk about moving or a house that’s too small, they need to learn those key buzzwords to be like, ‘Gosh, you should speak to our lending department.’”

Hewins says CUs are in a unique position because people come to them for a reason. “They come to a credit union for a particular message and for a particular experience—and part of that is that most people will talk to their credit union about their life plans, including homeownership.” CUs need to seize that discussion and be prepared to turn it into a lead or an application.

Credit unions need to build on this willingness by offering education, particularly for millennials and older members of Gen Z, who may be wary about the real estate market after witnessing the Great Recession of 2008.

Credit unions also have a special responsibility when they serve an underserved member, Hewins says, “to make sure they understand that there’s been no greater success of building generational wealth for a family than homeownership.” 

Talk With Members

Many credit unions made mistakes last year in cutting their marketing budgets and not talking to their members, says Stephenie Williams, VP/financial services marketing product and strategy at CUES Supplier member Harland Clarke, a Vericast business based in San Antonio that helps credit unions provide better member service through several channels. 

Last year, Harland Clarke surveyed hundreds of executives at banks and credit unions. “One of the things that we found was really interesting is that 38% of financial services organizations actually cut back on marketing during the pandemic,” Williams says. “And that’s a time when consumers needed to hear from credit unions the most, because they’re just sitting there at home—and where are they going to get their information?”

Williams says credit unions need to communicate their core message: “We care about you. We care about your community. We’re here to try to help you.”

Instead, many got nervous and pulled back on such messaging. 

This year, there have been many challenges in the mortgage market, Williams says. “Early in the year, the expectation was that the real estate market would be tough for credit unions. Mortgage refinancing was almost done, and sales were expected to be slow. Instead, sales have held up, and the market has shifted towards mortgage origination.

“This has created challenges for some credit unions that in the past have not focused on this business, instead relying on their lower rates to attract customers looking to refinance,” Williams says. 

Those credit unions are scrambling to create referral networks with real estate agents and develop and offer such content as home-buying seminars.

“There’s a lot of that foundational stuff that even those that have been in the industry for a while have gotten a little lax on because they had so much refi business,” she says. 

Williams recommends offering multi-loan preapprovals so members who qualify always have the option to increase their borrowing if they need to. A credit union needs to constantly remind its members about the many ways it is willing to do business with them, perhaps by offering preapprovals for such additional products as credit cards or home equity loans, she notes. 

“Having that ongoing dialogue in back-to-back waves throughout the year does a tremendous job in cementing those member relationships,” Williams says. 

Credit unions have opportunities to work with members to redirect their use of personal or home equity loans, she says. The No. 1 use of personal loans is to pay down credit card debt, but more than $83 billion has been paid off over the last year, and the average balance has dropped, so credit unions should consider advising members to focus their borrowing on what is usually the second priority: home renovations. 

Credit unions also need to review their approval processes for home equity loans, which can be slow and inefficient, and perhaps find a partner that can help them, she suggests. 

When it comes to car loans, lenders need to consider their limits, which may be too restrictive as average used car prices rise to more than $20,000. “I think taking stock and reviewing your limits is important,” she says.

Mike Long
VP/Platform Strategy
I think you just have to continue to put your resources into giving your members better experiences.

Invest in a Better Experience

It’s a good time for credit unions to go back to basics, underscores Mike Long, SVP/platform strategy at CUES Supplier member Origence, a CU Direct brand based in Irvine, California.

“Credit unions’ balance sheets are overloaded with deposits, so I think now is the time to get a little bit more aggressive on their underwriting so that they can leverage those assets more effectively by lending them out to other members.”

Long expects the economy to remain strong, so any loans made to credit union members who have jobs should be stable with little risk. “I think it’s a good time to be lending. The real issue for much of credit union lending is that there’s not a lot to buy,” he says.

He notes that production of new vehicles has been hurt by the pandemic, and this has resulted in greater demand for good used cars, making them scarce and more expensive. 

Credit unions can drive business by working to serve their members in as many ways as possible. “I think it’s all in trying to maximize every opportunity you have with the member” by using your lending platform to cross-sell additional products and services, Long explains.

For example, if members apply for a credit card and your staff learns that they have an auto loan at another institution at a higher rate, they must be offered the chance to switch that loan to your credit union.

Long notes that the credit bureaus can provide information on member loans and let a credit union examine where it can help members by offering them lower interest rates, perhaps through a home-equity loan. 

“This can help you target the message for the member, so there’s definitely lots of possibilities,” he says. Technology can help identify opportunities, and then you can use direct marketing to build your business.

Long says some research shows that younger people are averse to borrowing because they saw their parents struggle through the Great Recession, so they’re less likely to want to accumulate debt. But he predicts that ultimately this generation will start to buy homes for their growing families, increasing the market for mortgage origination.

Credit unions need to realize that all generations and age groups are digital veterans now, with even formerly reluctant participants pushed into it by the pandemic, Long emphasizes. “Certainly, the pandemic has increased their use of digital, but now most people are very comfortable that way,” he says.

Long also says Origence has had success with new document-processing automation that not only helps members get through the loan process faster, but also helps credit unions save time and money by eliminating manual form processing, which has been the bane of loan and mortgage origination. 

“We’re able to electronically take in loan packages, classify the documents and strip off the data,” he says. “All that was manual before and now we can automate a lot of it, and the machines are getting smarter.”

Stepping back to take a longer-term view, Long predicts the lending cycle will continue and that “soon enough, every credit union will be trying to figure out how to attract deposits.”

“I think you just have to continue to put your resources into giving your members better experiences,” he says.  cues icon 

Based in Campbellford, Ontario, Art Chamberlain has written about credit unions for more than a decade and has been a member for more than 30 years.

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