Published on November 14, 2014
Written by The Servion Group
With long-term interest rates suppressed for so long in the U.S., it's no surprise financial institutions experienced a significant and prolonged boost in mortgage refinance activity. However, that boom is over.
Research over the past year has shown that increasing mortgage rates have pushed refinance application volume down to levels not seen since 2011. And with the U.S. Federal Reserve expected to end its bond purchasing program soon, the outlook for mortgage rates includes further increases.
Even before 2014 got underway, government-sponsored enterprise Freddie Mac stated in its 2014: The Emerging Purchase Market report that the future promised a transition from a "rate-and-term refinance dominated market to the first purchase-dominated market we've seen since 2000."
With consumer activity shifting away from refinances, the pressure is on for financial institutions to compete for purchase mortgages. The question for many is: How do we gain an edge over the competition?
Doubling down on high-quality service
Various industry observers point to a focus on service as an important strategy in getting a leg up in the purchase mortgage market. Fortunately, this is one area where credit unions and community banks have been proven to excel.
The more personalized, relationship-based service that these institutions offer puts them in the ideal position to establish themselves as trusted confidants in the home buying process. While they will certainly have to compete with larger financial institutions on price and options, it's this dedication to service that can give them the push they need.
With that in mind, now is the time for financial institutions to make sure their lending departments are ready to move swiftly while maintaining superior service.
Balancing risk and reward
Besides more customized service, credit unions and community banks often have a reputation for being willing to take on the increased risks big banks won't. This can be a tricky line to walk, but it also gives them more of an edge among potential borrowers.
The key is figuring out how to help borrowers while also protecting themselves from potential losses. This is even more vital in the face of the Consumer Financial Protection Bureau's ability-to-repay/qualified mortgage rules, which could put lenders at greater risk of lawsuits.
It's important not to take on risk in a mad dash to increase purchase loan market share, but it's also smart strategy to hold fast to the reputation as lenders who are willing to go the extra mile for borrowers. Implementing more flexible qualifying standards based on different criteria for specific types of borrowers, taking into account more than just disposable income, can help credit unions and community banks offset their risks while growing their purchase mortgage portfolios.