What To Do About Rising Mortgage Rates Lowering Mortgage Originations

With the Federal Reserve continually hiking interest rates, mortgage origination volume is not expected to rise anytime soon. As interest rates rise, your members will be less willing to refinance their mortgages -- especially true for members that have home mortgages rates below 4.5%.

Borrowers might also become cautious about paying off their mortgages or moving because they have such low rates locked in for the long term. Recently a member said to me having such a low mortgage payment “is like living in a rent-controlled building”. In other words, it would take a lot of convincing to get them to move from their home now.

With refinancing out of the picture, that leaves just purchase mortgages and home equity loans for credit union mortgage departments. Nationally, purchase mortgage volume has declined, yet mortgage delinquency rates remain relatively low. This is likely because, unlike during the Great Recession of 2007-2009, homeowners have equity in their homes. Home equity loans are therefore becoming the sweet spot for the lending industry, since most homes have more equity than years previously due to the recent rapid appreciation of real estate. To be sure, as consumers feel the burden of rising costs of living and fuel costs, more and more will be tapping into that home equity.

Competitive pressures on credit union mortgage departments are more abundant than ever, arising from a variety of sources, including large and small banks, non-depository mortgage bankers, and mortgage brokers. Additionally, consumer self-education about finances and mortgages has been the evolving role of the consumers. The internet makes it easy for credit union members to learn, shop, and make decisions. On the positive side, they have also become more aware of the benefits of a credit union, being more likely to use a credit union as their everyday financial institution.

When it comes to refinancing, credit unions are seeing a slowdown in the number of requests they're receiving. Some credit unions responding to the slowdown will lay off mortgage staff. But progressive credit unions are still fighting back, trying to find ways to keep up with innovative ways to generate mortgage business. They are not only looking for ways to make their refinances more efficient but are they looking for more ways to capture more purchase mortgage share?

Joining the credit union movement back in 1982, I was impressed that credit unions were always trying to find ways to make money for redistribution to its members. One day, many years later, a credit union I was providing consulting services to decided to start originating mortgages. They believed it would be a great way to make money and help their members with the largest financial decision of their lives. But the results were not good. The credit union was always losing money on mortgages. They were constantly having to offer high interest rates, and they made a lot of mistakes.

What went wrong? Messaging and service to the members was lacking or inconsistent. For example, when a member of the credit union asked their credit union mortgage representative how business was, the representative was heard saying, "We're not doing well, but we're still trying." Or making members go through three service representatives to finally talk with a licensed mortgage representative. For the member it was death by a thousand cuts.

Also, the credit union's own mortgage offerings were lacking. Programs were limited to one or two options. For example, only offering 15-year fixed rate or adjustable mortgages. Members who wanted VA or FHA mortgages were sent elsewhere, like to a traditional bank.

What they needed to do was step back and do strategic alignment and tactical planning specific to the real estate program. Credit unions are very familiar, hopefully, with strategic planning but usually only at the board level. But the process, done with those in charge of tactical implementation, can be eye-opening and set them up for success.

Purchase mortgage success in today’s environment is achievable. We know this because other institutions are doing it. Working with the real estate department specifically we made strategic alignments and some tactical process implementations, propelling their purchase mortgage business. What we learned then was by aligning the organization around a clear strategic plan, and supporting the implementation of that strategic plan, purchase mortgages could drive success in the mortgage department.

Why does that work? Because it puts everyone on the same page, while creating accountability to management, and the overall corporate goals. Any mortgage department can thrive without refinance mortgages if they take the time to be self-reflected, and remove themselves from the day to day, seeing the forest not the trees. Taking the right actions at the right time will result in achievable purchase mortgage success for your credit union.

(Written by Peter Manfredo, President, Manfredo & Associates, advising credit unions and non-profits since 1982. For more information contact pete@manfredoassociates.com)