The Credit Union Alternative
This year for the first time in their century-old history, credit unions are on track to surpass $100 billion in mortgage loan originations.
Member-owned and not-for-profit, the institutions have benefited from the explosion in home refinancing, as well as a record growth in membership that industry representatives attribute to consumer disillusionment with the big banks.
"We'd be remiss if we didn't give a shout-out to the major banks for being annoying to consumers and forcing people to seek out other alternatives," said Bob Dorsa, the president of the American Credit Union Mortgage Association in Las Vegas.
Mr. Dorsa says much of the growth in mortgage business is concentrated among giant credit unions like Navy Federal and Pentagon Federal, which together have more than five million members. But he also says the industry as a whole has tried to reach out to younger generations who may overlook credit unions or consider them outdated.
Some institutions have even dropped "credit union" from their names because they believe it sounds antiquated, he said.
Credit unions were originally formed to provide affordable credit to defined groups of underserved customers, like those working for the same employer. Over the years restrictions on membership have loosened; the only requirement these days may be that the member and the credit union reside in the same community.
The CUC Mortgage Corporation originates and services mortgages for about 220 small to medium-sized credit unions, mostly in New York. Ed Kovalefsky, the company's chief operating officer, says CUC has seen a 45 percent increase in first mortgage originations this year compared with last year. "I think our credit unions are aggressively going after the business," he said. "They try to be as competitive as possible with regard to rates."
At the end of the third quarter, the credit union share of mortgage originations totaled about $89 billion nationwide, $7 billion more than in all of 2011, according to data provided by Mr. Dorsa.
This is not to suggest that credit unions are giving money away. Because they are owned by their members, the institutions tend to be fairly averse to risk.
And that has lately worked to their advantage. As portfolio lenders, credit unions usually keep at least half of new loans in their own investment portfolios, according to Bill Hampel, the chief economist for the Credit Union National Association. This allowed them to continue lending and build market share as the secondary market for mortgage loans collapsed during the housing crisis.
Borrowers shopping for a mortgage might find that credit unions can offer slightly lower closing costs than banks. Another advantage is that most credit unions retain the servicing on all of their mortgage loans (or contract with companies like CUC to do it for them). As member-owned cooperatives, they have an incentive to be responsive to their customers, Mr. Hampel said.
"The people working at credit unions know that they'll keep their jobs if they keep their members happy," he said. "There are no divided loyalties."
Still, borrowers should scrutinize a credit union's offer as they would any offer from any bank, broker or lender, advised John Walsh, the president of Total Mortgage Services in Milford, Conn. "Some credit unions could potentially have an expanded product line," he said, "but a fair amount of the smaller ones have a fairly narrow product line."
Writing mortgages helps credit unions establish a lasting relationship with consumers, Mr. Dorsa noted. But he is concerned that credit unions may not be able to hold onto so much business as interest rates creep up.
"Historically, when rates go up and refi goes down, our share and origination volume drops," he said. "We've made a concerted effort this time to get out in front of Realtors, so we hope we won't take as much of a hit production-wise as we have in the past."