Shifting Focus- A Competitive Mortgage Lending Strategy

Many credit unions are switching gears from originating mortgages to increasing internal efficiencies and employee productivity.


  Several experts including Federal Reserve Chairman Alan Greenspan have indicated that the next few quarters may exhibit lower levels of mortgage activity. In anticipation of such a slowdown, financial institutions are beginning to reexamine and develop internal processes to compete in this new lending landscape.

Many innovative credit unions have begun to implement online mortgage application processes to reduce processing costs. According to Fannie Mae's Focus 2004 Survey, financial institutions that offered a paperless application paid an average of $1,498 in origination costs per closed loan versus $1,798 for those without an automated underwriting system.

Those credit unions that have implemented an online mortgage application process are enjoying several distinct advantages, including:

  • Better member service: An online mortgage application allows the credit union to reduce turnaround times and render faster mortgage decisions. In a 2004 Callahan Survey Consortium survey, 72 percent of members received approval of their online loans within 48 hours. Similarly, 62 percent of members had their loan process completed within seven business days. Members expect fast turnaround times and may go elsewhere if not satisfied.
  • More loan applications: Online application programs allow credit unions to receive loan application outside of their normal business hours. Further, members have cited the ability to apply with anonymity as persuading them to fill out the application online. A+ Federal Credit Union ($465 million in assets, Austin, TX), for example, achieved a 50 percent increase in loan applications in 2004 by implementing an online loan application program.
  • More efficient processes: Implementing an online loan application requires a credit union to review all aspects of the mortgage application process. Credit unions generally enjoy more efficient processes and savings upon completion.
  • Higher likelihood of PFI status: The mortgage loan is a key ingredient to becoming the member's primary financial institution (PFI). Members have proven to be more loyal to the financial institution that has their mortgage loan. Credit unions that offer online loan application capabilities, therefore, are creating additional opportunities to receive applications and reinforce their PFI status.

There are several barriers that credit unions need to address to implement a successful online loan application program. These include:

  • Not listing enough relevant material online: The number one complaint that members have with online applications is the lack of educational material regarding their specific decision. Lending personnel should brainstorm frequently asked questions and develop strategies to address members' concerns and/or areas of confusion.
  • Not providing sufficient follow-up: While developing an online mortgage application will provide lending staff more time for other projects, members still need access to a live person. Credit unions should assign a loan officer to each application and hold the employee accountable for following through with that individual in a timely manner.
  • Not understanding why the member abandoned the application: Credit unions need to understand why a member failed to complete an online application. Credit unions need to get it right the first time or have a process in place to contact the member and address his/her concerns immediately.

Online mortgage application programs can enable credit unions to deliver significantly more value to their members and achieve greater efficiencies.