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Advancing CUSO Mortgage Lending: Strategies and Best Practices for Credit Unions

This roundtable discussion, part of the ACUMA Fall Leadership Conference, convened on October 8, 2004, at Caesar’s Palace, Las Vegas, Nevada, to explore the various advantages and best practices of CUSO mortgage lending. Key topics included serving nonmembers, staffing flexibility, and empowering credit unions (CUs) to expand mortgage offerings. The session delved into addressing member concerns, cross-selling strategies, and leveraging existing relationships while recognizing emerging markets and tailoring products to diverse community needs.

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Advancing CUSO Mortgage Lending: Strategies and Best Practices for Credit Unions

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  1. ACUMA FALL LEADERSHIP CONFERENCE ROUNDTABLE SOLUTIONS – RESULTS AND CONCLUSIONS October 8, 2004 Caesar’s Palace Las Vegas, Nevada

  2. CUSO MORTGAGE LENDING • ADVANTAGES • Serving Nonmembers • CUSO as an indirect lender • More product lines • Compensation • Staff and Executives • Staffing Flexibility • Enable more CUs to offer mortgage products

  3. CUSO MORTGAGE LENDING • ADVANTAGES (cont) • Approaching CUs not in the business • Reverse Participation (A new term invented by this group) (Def - Obtaining a commitment for the participation of loans on a forward basis)

  4. CUSO MORTGAGE LENDING • CUSO Organizations designed for Real Estate Lending • 13 CUs purchased an existing operation • 6 CUs formed a single CUSO • 1 formed a wholly-owned CUSO • Purchasing an existing mortgage business

  5. CUSO MORTGAGE LENDING • CUSO Organizations designed for Real Estate Lending • Transfer CU employees to a CUSO to begin operations • 2 Large CUs forming a single CUSO for economies of scale • Develop a Construction Lending CUSO to focus on a single loan product

  6. CUSO MORTGAGE LENDING • Best Practices approaching correspondent CUs • Gets the CU in the mortgage business • Lead with Loan Servicing • Offer marketing support/advice • Cross selling their products at loan closing • Keep members from competition

  7. CUSO MORTGAGE LENDING • Objections from CUs joining a CUSO • They just don’t get it! • CEOs and volunteer • CEO not willing to take responsibility for expanding products for their members • Existing relationships

  8. CUSO MORTGAGE LENDING • Objections from CUs joining a CUSO (cont) • Staff and management conflict • Job security (CU employees concerned about outsourcing) • CUSO will not provide the same level of service as the correspondent CU

  9. CUSO MORTGAGE LENDING • Ancillary products and services that may be offered by a CUSO • Real Estate Brokerage • Title Insurance and Settlement Services • Consumer loans • P/C Property & Casualty Insurance (Be careful) • Home warranties

  10. CUSO MORTGAGE LENDING • Ancillary products and services that may be offered by a CUSO • Life Insurance • Financial Services (Securities cross sell) • Reverse Mortgages • Fee Services (training, outsourced processing etc)

  11. EMERGING MARKETS • WHAT TO LOOK FOR & BEST PRACTICES • CUs as “out of the box thinkers” • Financial Partners and their billboards in Spanish. Take advantage of ethnic diversity • Aging members and reverse mortgages • Land trust activities in CO.

  12. EMERGING MARKETS • WHAT TO LOOK FOR & BEST PRACTICES • Affordable lending in Texas diverse markets (customizing GSE programs) • Nonconforming loans criteria in Nevada to conforming loans

  13. EMERGING MARKETS • WHAT TO LOOK FOR & BEST PRACTICES • Teaching auditors and examiners to understand nonconforming loans • Partnering with Realtors • Look to the CU’s roots of CU service mentality • Get the word out CUs make mortgage loans

  14. EMERGING MARKETS • WHAT TO LOOK FOR & BEST PRACTICES • Don’t reinvent the wheel • Talk with suppliers • Address unique member recordkeeping (documentation) and work to help them • Investigate how to help and educate members improve their loan quality

  15. EMERGING MARKETS • WHAT TO LOOK FOR & BEST PRACTICES • Check out www.Payrentbuildcredit.com • Learn what others (the competition) is doing

  16. CROSS-SELLING STRATEGIES • The “1003” has a great deal of information – Use it! • Staff needs to know the full scope of CU’s products • Look to sell relationships • Training is needed and necessary • Develop strategies for cross selling specific products

  17. CROSS-SELLING STRATEGIES • Monitor results from all activities • Don’t make the process harder than it has to be. Use of a single app? • Listen to what the members want. Improve listening skills • Evaluate audit skills. (Noted in incentive programs) • Incentives are helpful to achieve cross selling objectives • How effective is the tracking?

  18. CROSS-SELLING STRATEGIES • Specific department chartered to take the “1003” and begin the cross-selling process • Look for opportunities and efficiencies in approving credit • Make sure policies and strategies are in sync

  19. ALM ISSUES • Is this the time to retain or sell loans? • Make sure you clearly assess the opportunities versus your objectives • Make sure your board policies and ALM polices are in sync • Securitization strategies? When they are helpful and why? • Hedging strategies – Pipeline management

  20. ALM ISSUES • Investigate alternatives for hedging with other investors including secondary marketing entities and CUs through loan participations • What do you do with the funds you receive from loan sales? • Need more communication on lending and hedging strategies.

  21. ALM ISSUES • CU culture is still a bit of a disadvantage both inside CU industry and the market in general. • Is mortgage lending “CORE” to the CU’s business model? • If not, why not? • Priority level of mortgage lending needs to be raised in the CU community.

  22. ALM ISSUES • Should the mortgage lending executive sit on the ALCO committee (75% - Yes) (Slight bias noted)

  23. COMPENSATION STRATEGIES FOR RESULTS • Most popular group. Highest level of interest. • Comp is all over the map • Base Only – • Pro – Job security for CU employees • NEG – Lack of motivation

  24. COMPENSATION STRATEGIES FOR RESULTS • Base plus commission – Small base with commission $$ per units in excess of achieved goal • PRO – Additional incentive • CON – Only select people can earn incentives vs others • Sales people can make more money that senior CU staff

  25. COMPENSATION STRATEGIES FOR RESULTS • All Commission – • PRO – Motivation driven • CON – Works well in good markets not so well in soft markets • Cross sales and incentives – • Most were paying for cross sales using the 1003

  26. COMPENSATION STRATEGIES FOR RESULTS • Cross sell other CU financial products • Cross sell incentive on insurance products were about $50 • Originators pay processors to increase productivity

  27. COMPENSATION STRATEGIES FOR RESULTS • Paying overages – • PRO - Paying an originator on excess yield • NEG – Taking advantage of members perhaps instead of giving them a lower rate • Increasing source of business • Advertising, communication, and direct mail

  28. COMPENSATION STRATEGIES FOR RESULTS • Product Profitability – The mortgage is one of the most profitable products the CU offers • Employee retention • Career path for staff to work their way into higher paying positions

  29. COMPENSATION STRATEGIES FOR RESULTS • Use the better working conditions at the CU to attract qualified staff. • Are you aggressive enough on compensation strategies?

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