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Credit unions may be late to the party, but there are great reasons to consider working with them
The largest mortgage activity boom in human history came and went (or is going) with credit unions not gaining much headway in overall mortgage market share. That's going to be changing, for a number of reasons, and if you make an effort to work with them, credit unions will make your best clients in a lot of ways.
Credit unions are non-profit, member-owned institutions performing many of the functions of banks on a usually smaller scale for a usually distinct constituency. Size- and resource-wise, they will never compete with the largest mortgage originators. By their nature smaller and with a more limited geographical reach, CUs represent only about three percent of mortgage market share (which, if you're talking about $2 trillion in 2004, is nothing to sneeze at). Still, that's up from two percent in 2000. Barriers to entry and competition in the mortgage arena for CUs include obstacles such as longer approval times, fewer competitive loan products and more limited resources.
Balancing those obstacles to competing with the WaMus and Countrywides of the world are several advantages. Credit unions are relationship-based, and by virtually any measure customer satisfaction is higher with credit unions than other entities. Credit unions cross-sell well, and so have an advantage when it comes to servicing a shareholder. Owing to their size and their responsibility as member-owned, nonprofit institutions, credit unions will take the time to make borrowers comfortable with the mortgage process. Traditional wisdom says that everybody wants mortgages done faster, faster, faster. But in truth, a couple buying their first home often will trade time for peace of mind.
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How will CUs continue to improve their mortgage share? Both Fannie Mae and Freddie Mac have fairly recent programs to help CUs compete for mortgage business. In addition to Fannie's Desktop Underwriter and Freddie's Loan Prospector, innovations like the Mercury Network make the ability to work with service providers less expensive and resource-intensive than playing phone and fax tag. Other technological and infrastructural advances level the playing field, too.
A recent trend among credit unions is the formation of CURENs: Credit Union Real Estate Networks, which amount to big brainstorming sessions. CUREN groups offer networking and educational opportunities to help expand the mortgage lending business for credit unions, sharing ideas and resources. Recently, representatives from ten credit unions from North and South Carolina formed a group under the sponsorship of United Guaranty Residential Insurance Co. (UGRIC), a mortgage insurer. UGRIC also helped establish a CUREN last year in southeastern states. Others exist in southern and northern California, the Mid-Atlantic area, Washington state, Texas, and Florida.
What are the advantages of working with credit unions if you're an appraiser? Many of the same advantages credit union members realize when they get their loans there.
- There's more personal attention. Credit unions as clients will often value the quality of their member's experience with an appraiser over report turn times.
- Credit unions, being nonprofit, are not in the business of making a loan work no matter what. They're chartered to serve their members, including the borrower.
- Because of the member "comfort factor," credit unions are likely to do more purchase business than home equity and refi. Purchase business is going up, home equity and refis are going down.
- As with any smaller operation, pay is likely to be more prompt, issues more likely to be resolved locally and with a person whose name you know.
- And also being smaller, if you do good work it's likely to be recognized and you're apt to get more of it!
How do you get started? That's another great part. Call your local credit union and ask! An actual person will tell you what you need to do and if they're in need. Sometimes, owing to historically low volumes, they'll have all the appraisers they need on their rolodex already. But no harm in getting your name on file — business may be picking up!
Newspaper story causes kerfuffle
The San Francisco Chronicle ran a story Friday that caused agitation and consternation among appraisers who saw it: Appraisals being sent abroad
, the headline read.
The story is one of a long line of stories about how data entry, clerical and other routine functions are being outsourced abroad, which is an issue that should concern any jobholder or participant in the American economy. Homeowners whose real estate data may be being sent overseas should also pay attention. But CitiMortgage and its settlement services arm, Chesapeake Appraisal and Settlement Services, aren't replacing appraisers with workers from India, as the article makes clear.
Reviews for completeness and formal accuracy — not for USPAP compliance — are being outsourced to India. "I started receiving faxes from clerical workers asking me questions about my forms," an anonymous appraiser told the Chronicle. "I noticed that the faxes were from India. I asked Chesapeake and they said a lot of appraisals were being sent to India for checking." At Chesapeake and other large Appraisal Management Companies, these are functions normally performed by processors and data entry persons.
A Calaveras County appraiser makes the point in the piece that licensed appraisers are forbidden from disclosing the contents of an appraisal file to anyone, and non-licensed persons on another continent are not likely to be licensed appraisers. However, as the piece also makes clear, no privacy laws or regulations are enforceable in India — in other words, even if appraisers were doing the reviews, they would not be bound by any enforceable privacy standards, USPAP or otherwise.
It's a troubling issue, but one that has morphed into "appraisals are being done by unqualified workers in India!" And that's not the case. Appraisers should read the article for themselves and contemplate the issues it raises.
More refinancing borrowers tapping their home equity
As fewer borrowers refinance their mortgages to lower their rates, more as a percentage are refinancing to tap into their home's equity. Rates may (or may not be) going up, but property vales certainly are, almost everywhere.
Freddie Mac tracks cash-out refinances quarterly, by evaluating how many new loans result in a loan balance at least five percent higher than the old loan. If you're refinancing to lower your monthly payment, chances are you'll wind up with a loan balance that's close to identical to your old one. If your loan balance is greater, it's because you're tapping into home equity.
In the fourth quarter of 2003, 45 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages at least five percent higher in amount than the original mortgages, according to the most recent review, released last week. This is in contrast to the third quarter of 2003, when an upwardly adjusted 34 percent of refinanced loans had higher new loan amounts. A year ago, when fixed-rate mortgage rates were still falling, 40 percent of refinanced loans were for cash out, but the number of loans being refinanced was considerably higher, Freddie said.
American Banker in the trenches
American Banker's February 5 edition featured a nearly 3,000 word piece entitled A View of Refi Boom Pressures From the Appraisal Trenches. American Banker's content is available online to subscribers only, and copyright prevents us from passing it along.
It reports that pressure to overstate values may have intensified during the recent refi boom. "As more consumers sought to take equity out of their homes, [appraisers interviewed by AB said], loan officers and mortgage brokers increasingly leaned on them to come through with values high enough to make cash-out refis worthwhile. If the appraisers held their ground, they said, they lost business to others who did not."
Several appraisers told their refi boom war stories; Don Kelly from the Appraisal Institute spoke of AI members' concerns and the group's efforts to support anti-pressure legislation; Angelo Mozilo, the chairman and chief executive of Countrywide Financial Corp., Todd Bjorklund from Wells Fargo Home Mortgage and Chuck Reed, a senior vice president at ABN Amro Mortgage Group were interviewed; an October Research Corp. national appraiser survey, sponsored in part by a la mode, was cited.
Overall, the piece is balanced and correctly represents appraisers "in the trenches" as capable, ethical and honest. It points out what we tell anyone who asks (and many who don't): No disinterested, third-party appraiser in the history of mankind has ever inflated a value on his or her own.
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Briefs
Six new WinTOTAL forms out
WinTOTAL users with annual update memberships are ready to use six new forms released Friday: Get a Home Inspection [HUD-92564-CN 02/2004], letter and legal size; Estimates of Market Rent by Comparison [HUD-92273 07/2003]; NARA Residential Review 2002 [Rev. 01/04]; Notice to the Homebuyer with Supervisor's signature block [HUD-92564-HS 7/2003]; and Desktop Valuation Limited Appraisal/Summary Report [01/04].
Record homeownership rate
The homeownership rate in the U.S. at the end of 2003 was a record 68.6 percent, and minority homeownership cleared 50 percent for the first time, the Census Bureau reported last week. At the end of 2002 the rate was 68.3 percent. "These homeownership numbers coupled with [a] record number of new and existing homes sold last year, show that housing continues to lead the way in our rebounding economy," acting housing secretary and Bush administration nominee Alphonso Jackson said.
NAR affiliate tries to peg value added by home amenities
The National Center for Real Estate Research, an affiliate of the National Association of Realtors®, released an eight-year statistical study of almost 29,000 home sale transactions to pin down the value of certain home amenities, as reported by nationally-syndicated real estate columnist Ken Harney. Among the features the study concludes add value to homes: first-floor laundry room (15 percent over a basement-level one); garages (12.9 percent); extra full bath (24 percent); nine-foot ceilings (6.2 percent over lower ones); kitchen island (5.3 percent) and a double oven (8.1 percent).
This week's challenge
Write and tell us your most ridiculous client request. No names! Maybe it was a request for an addendum, maybe it came with the assignment itself. Something like, "if it boosts the value, please count the swimming pool as an extra full bath, too." Let's see which a la mode customer has had the most ridiculous request. We'll run the best responses we get next week, identifying you by your first name and last initial only, and where you're from, so please be sure to let us know that.
Last week, we asked about your best technology investment of the last few years. We liked Victor A.'s: "It has to be two major purchases. 1. WinTOTAL appraisal software which
has saved enormous time for our staff and appraisers in billing, accounts receivable, etc. 2. Digital cameras which have saved an average photo development bill of around $1,000.00 per month. I think that without these two items, we would have likely given the appraisal business up during the 1990s boom!"
Two weeks ago, we asked you to suggest a new job for your least favorite loan officer — the one always leaning on you and threatening not to pay unless you make the number. Brian E. from Monmouth County, N.J. had a great idea: Make him or her an appraiser trainee! "When they see how hectic our days are, they will understand why we don't volunteer addenda, extra photos, higher values, etc...."
This week, send your most ridiculous client request ever to the editor: mattb@alamode.com. Also send any tips or feedback you might have.
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