Growing Your Mortgage Business In A Challenging Market

by John Toohig
Growing Your Mortgage Business In A Challenging Market

It’s a great time to be a lender in just about any loan category in the credit union industry. Assets, total loans, resi, auto, credit cards, member business loans are all up. Even better news, delinquencies are at cycle lows, so performance is strong due to a healthy economy. The only blinking red light has been loan to share ratios that are at 40-year highs, which gives some concern to liquidity going forward. Deposits are at a premium and their costs are starting to rise.

(Source: NCUA)

However, the long slow uptick in rates has taken its toll on originations, though hopefully the recent pullback in rates helps the refinance market. The continuing rise in home values, coupled with low inventory, has made housing affordability a real challenge for everyday America. The chart below provided by the Urban Institute shows the volumes we’ve experienced over the last few years. Most forecasts call for more of the same for the next 2+ years with originations being flat (at best) around $1.5tn annually.

The member is also heavily focused on 30 year fixed rate loans as that product dominates overall originations. The changes made by the CFPB on the “Qualified Mortgage” in 2014 changed the way adjustable rate mortgages were underwritten. Back at their peak during the housing bubble, ARMs made up nearly half the mortgage market. Today, they make up only 8-9% of current volumes. Much of this is driven by the rise in the short end of rates. If 1 year LIBOR is 2.72% and a margin on a current ARM is 2.5%, a loan that resets would be around 5.22% today. Where currently 30-year rates are roughly 4.25%-4.5%, making the math fairly straight forward to the borrower. But depositories- credit unions in particular- are not great owners of longer-term paper. They prefer a product with less interest rate risk in an ARM.

The picture gets murkier as you look at the overall mortgage industry where non-bank originators are starting to dominate this market. Sixty-five percent of the residential loans are now non-bank originated. Quicken, LoanDepot, Caliber, and United Wholesale now populate the top 10, while Wells Fargo, Bank of America and Chase are still in the hunt but losing ground rapidly. Heavy investment into technology by the non-banks has left depositories scrambling to keep up. Products like Rocket Mortgage allow borrowers to qualify for a home in 10 minutes with near instantaneous feedback. Where can a credit union complete in this crowded space?

Relationship still matters, and credit unions do an amazing job of servicing and listening to the member’s needs. The purpose of my presentation at CU Direct’s Drive ’19 Lending Conference will be to show you where you can still compete and win market share in mortgage.

  • Where are some of the road blocks in “portfolio” lending and what products are liquid in the secondary market?
  • Non-QM lending is one of the few growing areas for originations in residential lending. But isn’t non-QM lending risky? We will address various pain points in the loans. What’s appropriate for your risk tolerance?
  • What’s the difference in the various non-QM products/niche products currently in the market? Asset depletion, bank statement, credit or life event, foreign national, “alt doc” lending, non-warrantable condos, single family rentals, just to name a few.
  • Some examples of recent trades in each of these product spaces. Underwriting and credit comments. What’s saleable and at what general levels?

I appreciate the invitation extended by CU Direct to bring our expertise to the Drive Conference. Credit Unions represent a significant part of our relationship business and we look forward to continuing to serve this market. We think this will be a very informative session for credit unions looking to grow their mortgage originations safely.

Don’t miss out — join us at DRIVE and discover the strategies your credit union needs to gain a real competitive edge.

About the Author

John Toohig
John Toohig is a Managing Director at Raymond James, a Board Member and President of Raymond James Mortgage Company, Inc and Head of the Whole Loan Group. As manager of the Whole Loan group, John's primary responsibilities include day-to-day trading of whole loan packages, portfolio analysis, transaction management and the structuring of whole loan, participation and various structured products.