Credit Unions Gaining Relevance in National Mortgage Market and Reaching Higher to Boost Market Share

Reed said that credit unions operate in a “dynamic environment, and now we’re in the middle of this subprime crisis. Your ACUMA board of directors has discussed this thoroughly and we see that many of our competition are gone. Credit union mortgage production is up from 20%-60% across the nation and that is very good news. But we can still do better.”

“Many credit unions have always done a superb job of serving their members’ mortgage needs, and now, we have to start talking about how we do that, both to each other and to the media. At this ACUMA conference, we have 30 states represented,” said Reed. “That tells me that ACUMA’s reach is national in scope and we are having a good effect. Remember that we are the only trade association that promotes credit union mortgage lending exclusively. We believe it’s key to overall market share and to making credit unions the primary financial source for more Americans. And yes, these are certainly unique times. But I ask you, when haven’t we found ourselves in unique times?”

Added Dorsa, “The resiliency of the credit union system throughout this subprime and economic crunch is a testimony to your hard work. The reason that real estate production is up is because of you. So what we told you at our last conference, which was, ‘The Time is Now!’ remains true today. So please, spend your time talking to one another, share your thoughts, successes and plans for growing the mortgage part of your CU portfolios. And please visit with our sponsors in the exhibit hall, because not only do they help to make this conference possible, they have answers to your questions and services you’ll find valuable toward reaching your goals.”

Recession Will Be Short and Mild, Says Moody’s Economy.com’s Faucher
CUNA’s Hampel Sees Savings Resurgence; Lower Net Worth Ratio at CUs

Economy.com is arguably the leading economy Web site, and was founded by Mark Zandi, who distanced himself from other economists by correctly calling the housing bubble what it was before anyone else did. (Zandi fell ill and could not appear, but Faucher did a great job of filling in for him, noted ACUMA President Bob Dorsa.) As Faucher acknowledged, “things just couldn’t go on the way they were going.”

Some states entered into recession before others, (Inset A) and as expected, the biggest real estate boom states topped the list with California, Nevada and Florida. The upper Midwest job losses associated with the auto-manufacturing sector are in recession, too. “The labor market started to lose jobs in early 2008 and families have been under financial stress since the end of 2005, but delinquencies on credit card and auto loans became dramatic in 2006. Now, home prices are down 10% from their peak and people are pulling back on spending owing to the big jump in gas prices and food.”

CUNA’s Chief Economist Bill Hampel seconded Faucher’s opinion on recession during his day-three economics session. “For the first half of the year it’s recession. In July we should start to see the effect of the stimulus package passed by Congress, and the Fed’s monetary policy may kick in. What’s interesting is that this recession is consumer-led, while the last one was business-driven.”

And Hampel offered a possible reason the recession will be mild, as Economy.com also predicts: “Our strength in net exports, due to the lower dollar.” As Asia and Europe can afford more American products, they are buying them up the way Americans used to buy Asian and European goods when the dollar was worth more than it is today.

The level of pain faced by American families nowadays troubled both Faucher and Hampel. Without the equity of their homes to tap, many have begun using credit cards more liberally. The pain of doing that is only deferred until the bill comes due, and then the interest on the balance makes it worse.

Faucher posited that the housing downturn, which has accelerated in the last six months, (Inset B) has also exacerbated the credit crunch. “The safety net’s been broken, and what caused that to happen is cheap credit –partly the Fed’s fault– a busted regulatory system that allows banks to select their own regulator, with its built-in incentive to go easy on them, a conflict at the Fed over its dual role as regulator and monitor of consumer protection, and finally, some cheating by those writing loans and those taking loans.”

“Credit unions avoided the worst of the excesses and their capital is in good shape,” said Faucher. “If someone can’t get a loan from a mortgage broker because of tightened lending standards, they should try a credit union. My feeling is that because credit unions are sitting on money now they will play an important role in mortgage lending in the near future. And that’s particularly true because it remains a low rate environment.”

Hampel suggested that the Fed would lower rates again when the Federal Open Markets Committee was set to meet in early May. He predicted a 50 basis point drop with a half-point again later, taking the funds rate to 1.5% (The Fed lowered the rate by one-quarter point, taking it to 2%). He advised that the recovery from the recession would be “very slow.” The level of household debt troubles Hampel because the time required to pay it off is increasing.

Congress will probably have to do more than the already-announced mortgage proposals, Faucher predicted. “I think we’ll see something along the lines of the government acting as a backstop.” (Inset C) The number of homes ‘underwater’ homes (mortgages higher than their present value) is nine million, and that number will likely rise to 12 million in 2009. But the turnaround may be delayed until the bottom of the housing market is sounded. And banks haven’t been able to assess losses yet, so they are wary of further lending. “One third of the assets of large banks are tied to residential real estate, so they are cutting back because they’re not sure what will happen to their capital,” Faucher said.

Hampel said that drops in home values have been happened before and it may take 5-6 years for this correction to work itself out. The reason: loss aversion. “There’s so much emotion attached to home prices that there’s a reluctance to realize even a perceived loss. People selling their home want what their neighbor got who sold two years ago. Forget it. That’s why it takes so long for a housing correction to stabilize.”

Home sales are down 30% from last year but that means a boon for refinancings at credit unions. But there will be slower loan growth and substantial downward pressure on net income and a falling net worth ratio, Hampel said. “Other lenders will be pulling back much more than credit unions have to and that means CUs can pick up a greater share of members’ business. “I don’t mean make stupid loans,” he warned. Hampel suggested that credit unions make better use of CUNA’s HLPR program. Doing so would vitally aid CU lobbying efforts of telling the CU story of serving lower income members.

Getting Share

Welcome to Nashville Opening Reception
See ACUMA members relax and network after Day One Conference Proceedings. (CLICK HERE)

Ross Shafer: Unconventional Thinking for Unconventional Times

“It’s cultural anthropology,” explained Shafer, so he recommended that credit unions appeal strongly to the issues with which women identify. And since it’s the woman who usually controls the home budget, “capture the women, and the men will follow.” Use advertising and marketing that appeals to women’s empathy and success will also follow.

Shafer also noted an obvious law typically overlooked by many financial institutions: “When people love you they’ll give you more money!” Credit unions, by their nature have an advantage here, he said. He skewered most of the motivational speakers on the circuit. “No body moved your cheese!” he said. “All motivational speakers do is sell temporary enthusiasm. When the audience gets home after buying all these books, DVDs and tapes they find out that they are still the same people they were before they went in. You are the only expert on you. Don’t let other people be the judge of your success.”

But in business, it’s emotions that drive transactions, so credit unions would be wise to remember that. “You need to know what a transaction feel like. Remember, people want an experience, not a transaction, so develop consumer empathy. From you, they want personality.”

What’s New at FHA?

Louden stressed that the “old” FHA no longer exists and that the agency has been totally revamped, modernized and streamlined to make operations more smooth. She wants more credit unions to become FHA lenders and said the agency is committed to helping CUs take advantage of FHA programs.

Preventing Foreclosures is Personal, Says Freddie Mac Manager

“People are in denial,” said Stout-Migala. “It’s not unlike what they go through with having to face the death of a loved one, the stages of accepting death,” she said. For far too long, they try to avoid dealing with it. They don’t contact their lender. Their hoping to find some way out and can’t. Finally, for many it becomes too late to access any help from community groups or federal agencies.

Stout-Migala has 18 years of experience in the default servicing and real Estate Owned (REO) areas and has seen it too often that desperate people fall prey to scammers. That’s why she’s so positive on all the publicity surrounding the subprime meltdown, because the more people hear that there’s help to be had, the more will seek it out.

CU officials listening to Stout-Migala’s breakout session on loss mitigation and foreclosure avoidance wanted to hear how she is managing to help borrowers (who didn’t get loans at credit unions) take necessary steps and guiding mortgage servicers with intervention efforts. Underwater homes (where the present value is less than the mortgage) are common is areas where home prices escalated during the real estate boom, i.e., Florida, California and parts of the Midwest, particularly Detroit.

Stout-Migala described a foreclosure seminar in Detroit in February organized by the state attorney general that drew 3,000. “And that was a good thing, because the fact is that 50% of borrowers go into foreclosure without even speaking to their lenders. That’s half of foreclosures, and we need to do better than that.”

Job loss is the biggest culprit for blame in foreclosures, she said. Job loss accounts for 43% of mortgage delinquencies. Illness in the family runs second at 22%. Buying more house than the borrower can afford (combined with other debt or excessive obligation) was third at 16%, then divorce, 6.6% and a death in the family, 3.8%.

Stout-Migala is “kept up at night” by the prospect of interest rates climbing while home values continue to drop. That will stymie workout loans and put more homeowners underwater. Bigger foreclosure numbers also scare her. Growing fraud activity is another gnawing problem.

So it’s back to the fundamentals, said Stout-Migala. Borrowers must make mortgage payments the first priority and avoid other overspending. With a negative savings rate, it’s hard to develop a rainy day fund. Servicers need to play a part by finding a way to make things work if possible, because a lower payment is better than none, and too many foreclosures will cost far more than the difference.

She cited the Hope Now Alliance, Project Lifeline, FHASecure and community groups like NeighborWorks as helplines to counsel borrowers. Technology can help too, with Freddie Mac’s Workout Prospector, a tool to structure alternatives (CLICK HERE) available to lender/servicers as an example.

Other Break Out Sessions offered in Opryland included:

A View from the NCUA Board

Her message was one of efforts to work together through the crisis, with CUs doing all they can to help members and be a part of the greater solution. But “where the rubber meets the road is with examiners,” she said, warning that the agency doesn’t want CUs to become too risk-averse. Hyland advised that examiners have been tasked with safety and soundness as an operating principal, but said that an ongoing communication between CUs and examiners can forestall any problems from developing.

“I’m also asked: what do I do if there is a problem with an examiner? There may be a fear of retaliation. And if all attempts at mutual communication fail and there’s no resolution, then you should contact the regional director.”

Hyland spent some time discussing the Treasury’s Blueprint, a proposed revamping of agencies that oversee banks and credit unions. “It’s not going anywhere fast,” she said, but it is worth looking at the regulatory system and how it functions. She was doubtful that the NCUA (and the CU charter) would be phased out.

Farewell from ACUMA President Bob Dorsa

I hope you have enjoyed your time here in Nashville and I hope you go back to your shops renewed and reinvigorated, because it’s never been more important for credit unions to reach out to help members buy a home. Thank you, and I hope to see you in Las Vegas at our Fall Leadership Conference at Caesar’s Palace in October.”