Banks and retail mortgage lenders often dominate the news cycles, and the rise of the mortgage broker has also been garnering attention as of late. But credit unions are often left out of the discussion, and consumers often forget that they can be an option for mortgage loans.
Credit unions have a small percentage of the mortgage market pie; at the end of 2018, they were responsible for 8.3% of first mortgage loans according to Callahan & Associates, a credit union research and consulting firm. And yet some of the benefits of working with a credit union are those that mortgage originators are eagerly selling to borrowers: low rates combined with personal service that is as local and caring as lending gets.
“The big banks—that scares a lot of people,” said Ashley McKenzie-Sharpe, senior mortgage planner with Fairway Independent Mortgage. “‘Are they being honest? Are they really truly giving me the best options?’ I think we all know that not all those other institutions have the best reputation when it comes to returning phone calls and being responsive, and valuing closing dates, so I think that people turn to their credit unions because they have that more personal touch that a lot of people really want and still desire.”
Credit unions were first started in Germany in the 1800s, and the first credit union officially opened in the United States in the early 1900s. President Roosevelt signed the Federal Credit Union Act in 1934, which authorized the establishment of federally chartered credit unions in all states, although cooperative lending already existed in communities across the country at that point and were providing credit to consumers and small businesses alike. Both in Europe and in North America, credit unions grew out of a desire and need for the working class to have access to credit with favorable terms. The major commercial banks and lending institutions didn’t see a lot of profit in working with this demographic, said Jerry Reed, the president and CEO of Member First Mortgage, a multi Credit Union Owned Service Organization.
“The main purpose of credit unions, really from day one, has not necessarily been to drive a profit but to more or less meet the needs of its members. That particular philosophy has permeated it and still does today. Although you may have larger credit unions that act and think and look more like commercial banks, I would say 90% of the credit unions out there still today are smaller credit unions serving the needs of a particular area, and often times when they charter it’s because there’s a need by some group that isn’t being met out there,” he said.
Credit unions were designed as cooperating financial institutions owned by the account holders, or members, and are non-profit institutions. Mortgage lending wasn’t a part of credit union offerings until relatively late in the game and was never a primary focus of business. The largest segment of business for credit unions is actually auto loans, which has expanded to 20.5% of market share nationwide. Mortgages, on the other hand, lag behind. By the end of 2018, fixed-rate first mortgages only made up 28.7% of all credit union loans, according to CUNA Mutual Group’s Credit Union February 2019 Trends Report, and currently 2.5% of members have a first mortgage loan at their credit union, up from 1.9% in 2009.
A noteworthy data point, however, is that share draft penetration, a measure of whether the credit union is a member’s primary financial institution, is up 11.7% since 2008, to 57.6% of members. The average member relationship reached $18,775 in 2018, up $5,000 since 2008, according to creditunion.com.
After the financial crisis, when the general public soured on traditional mortgage lenders, credit unions started to assert themselves and make it known to the masses that they didn’t buy and sell the types of loans that led to the collapse, nor did they try to profit from large investment banks. Instead, they’ve successfully served traditionally underserved communities for close to a century. There was a resurgence of credit union pride, said Reed, and consumers started to ask about what credit unions were and how they operated.
“Unfortunately one of the main problems in the credit union space is credit unions don’t have the budget, and they don’t go out and advertise broadly and spend those kind of dollars. Some people really didn’t know what could their local credit union do or not do. So when that started happening in 2008, I think that’s when credit unions really started to get a lot more attention.”
For the borrower who has non-traditional, non-straightforward situations, working with a credit union is probably not be a good fit. Most, Reed said, tend to stick with what they know, which is a conventional mortgage product. The tradeoff, however, is that credit unions are, and always have been, incredibly focused on member service and the customer service aspect of the experience. Because of this, they are hesitant when it comes to exploring other, more complicated products.
“The reason that they shy away from it is, they’re so focused on member service,” Reed said. “I think every union’s trying so hard that every time there’s a contact point with that member, it’s a positive experience.”
Despite the credit union image, which is often an old-fashioned approach to handling simple needs in an unsophisticated manner, credit unions are an attractive place for many borrowers who find value in that community-centered ethos—if only they knew it existed.